Capacity expansion to drive growth…
• Mangalam Cement’s Q1FY15 numbers came in ahead of our
estimates mainly due to a sharp growth in volume along with
improved realisations. Revenues were up 35.5% YoY to | 228.1 crore
led by 28.9% YoY growth in volumes (0.58 MT) while realisations
increased 6.4% YoY to | 3954/tonne
• Improved volumes helped in improving margins, which came in at
15.5% with EBITDA/tonne increasing to | 614/tonne, up 12.5% YoY
• However, net profit declined 31.2% YoY to | 13.0 crore due to higher
tax (I-direct estimate: | 13.9 crore)
Small player with presence in strong northern and central regions
Mangalam Cement has always remained a laggard in terms of capacity
expansion. However, a presence in the strong northern region has always
helped it to keep utilisation at healthy levels. At present, the company
sells ~95% of its cement production in the north while the remaining
volume is sold in the central region. Both northern and central regions
have high demand compared to other regions. For FY11-14, cement
consumption grew at 5.4% CAGR in Northern India and at 7.2% CAGR in
central region compared to 5.1% CAGR consumption growth for all-India.
Going ahead also, demand environment is expected to remain robust in
these regions resulting in favourable environment for Mangalam Cement.
Commissioning of new capacity to drive volume growth
The new cement mill with a capacity of 1.25 MTPA has commenced
commercial production from the end of May this quarter. With this, total
cement capacity of the company has reached 3.25 MTPA from current
capacity of 2.0 MTPA. Clinker capacity is also expected to increase to 2.21
MTPA from current 1.71 MTPA. The company expects to utilise the new
capacity at more than 90% within six months of commissioning, which
will drive the growth of the company in coming years. Existing capacities
of the company are also being utilised at more than 90% level.
Availability of captive power plant to lead to higher margins
Against the present requirement of 23 MW power, the company has
captive power plants of 35 MW. On many occasions, the company has to
keep one plant idle as the rates offered by the Government of Rajasthan
and also on the energy exchange for purchase of power produced by the
company were unprofitable. On increase in production of clinker capacity
by 0.5 million TPA and new grinding unit by 1.25 million TPA, 100%
captive capacity is expected to be utilised.
Earnings growth momentum to continue; maintain BUY
At the CMP of | 241, the stock is trading at 5.2x its FY15E and 4.1x its
FY16E EV/EBITDA respectively. On an EV/tonne basis, the stock is trading
at $45 on capacity of 3.25 MT, which is at ~35% discount to its midcap
peers. This leaves much scope for appreciation over the longer term
despite the sharp rally in stock prices over the last month. Given the
improving demand scenario coupled with the capacity expansion of 1.25
MT from Q1FY15E onwards, we expect growth in profitability to remain
healthy over the next two years. Hence, we continue to maintain our BUY
rating on the stock with revised price target of | 277/share (i.e. at 4.5x
FY15E EV/EBITDA, $50/tonne on capacity of 3.25MT).
��
• Mangalam Cement’s Q1FY15 numbers came in ahead of our
estimates mainly due to a sharp growth in volume along with
improved realisations. Revenues were up 35.5% YoY to | 228.1 crore
led by 28.9% YoY growth in volumes (0.58 MT) while realisations
increased 6.4% YoY to | 3954/tonne
• Improved volumes helped in improving margins, which came in at
15.5% with EBITDA/tonne increasing to | 614/tonne, up 12.5% YoY
• However, net profit declined 31.2% YoY to | 13.0 crore due to higher
tax (I-direct estimate: | 13.9 crore)
Small player with presence in strong northern and central regions
Mangalam Cement has always remained a laggard in terms of capacity
expansion. However, a presence in the strong northern region has always
helped it to keep utilisation at healthy levels. At present, the company
sells ~95% of its cement production in the north while the remaining
volume is sold in the central region. Both northern and central regions
have high demand compared to other regions. For FY11-14, cement
consumption grew at 5.4% CAGR in Northern India and at 7.2% CAGR in
central region compared to 5.1% CAGR consumption growth for all-India.
Going ahead also, demand environment is expected to remain robust in
these regions resulting in favourable environment for Mangalam Cement.
Commissioning of new capacity to drive volume growth
The new cement mill with a capacity of 1.25 MTPA has commenced
commercial production from the end of May this quarter. With this, total
cement capacity of the company has reached 3.25 MTPA from current
capacity of 2.0 MTPA. Clinker capacity is also expected to increase to 2.21
MTPA from current 1.71 MTPA. The company expects to utilise the new
capacity at more than 90% within six months of commissioning, which
will drive the growth of the company in coming years. Existing capacities
of the company are also being utilised at more than 90% level.
Availability of captive power plant to lead to higher margins
Against the present requirement of 23 MW power, the company has
captive power plants of 35 MW. On many occasions, the company has to
keep one plant idle as the rates offered by the Government of Rajasthan
and also on the energy exchange for purchase of power produced by the
company were unprofitable. On increase in production of clinker capacity
by 0.5 million TPA and new grinding unit by 1.25 million TPA, 100%
captive capacity is expected to be utilised.
Earnings growth momentum to continue; maintain BUY
At the CMP of | 241, the stock is trading at 5.2x its FY15E and 4.1x its
FY16E EV/EBITDA respectively. On an EV/tonne basis, the stock is trading
at $45 on capacity of 3.25 MT, which is at ~35% discount to its midcap
peers. This leaves much scope for appreciation over the longer term
despite the sharp rally in stock prices over the last month. Given the
improving demand scenario coupled with the capacity expansion of 1.25
MT from Q1FY15E onwards, we expect growth in profitability to remain
healthy over the next two years. Hence, we continue to maintain our BUY
rating on the stock with revised price target of | 277/share (i.e. at 4.5x
FY15E EV/EBITDA, $50/tonne on capacity of 3.25MT).
link
http://content.icicidirect.com/mailimages/IDirect_MangalamCement_Q1FY15.pdf
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