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Mangalam Cement : BUY : ICICI Securities

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:: Target: INR 209: SPA

Mangalam Cement reported below than expected set of numbers in Q4FY13 largely on the back of sharp decline in
volumes. This was due to subdued demand for cement coupled with closure of clinker unit for couple of months resulting
in decline in clinker sales volume from 79304 tn in Q4FY12 to 10957 tn in Q4FY13. Upcoming clinker and cement capacity of
0.50 mt & 1.25 mt by Oct 13 & Dec 13 respectively will drive the next leg of growth. We introduce FY15 estimates and retain
our BUY rating on the stock with a revised target of INR 209 (Previous TP 193).

Technicals: Indian Hotels, IOB, Zylog Systems, Lloyd Electric, Mangalam Cement, ING Vysya, DLF :: Business Line

Hold Mangalam Cement; Target :Rs 151 ::ICICI Securities (pdf link)

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PDF LINK for report- click HERE



M  a r g i n  s   s u  r g e   o n   c o  s t   s a  v i n  g  s …
Mangalam Cement reported net sales of | 172 crore (up ~57% YoY,
~39% QoQ), which was below our estimate of | 190 crore on account of
lower than expected cement realisations. Realisations remained flat
sequentially at | 3399/tonne (our estimate: | 3720/tonne) due to higher
clinker sales in Q3FY12. The volume jumped sharply during the quarter
on the back of a pick-up in demand post monsoon. EBITDA margins of
22.9% and PAT of | 26 crore were above our respective estimates of
11.6% and | 12 crore, on account of lower-than-expected costs. Power &
fuel cost and raw material cost declined due to use of efficient fuel
(petcoke). EBITDA/tonne increased to | 779/tonne vs. our expectation of |
430/tonne. With the expansion of 1.25 MT at Aligarh (UP), total capacity
would reach 3.25 MT by FY13E end. We expect cement sales volumes of
1.74 MTPA in FY12E and 1.75 MTPA in FY13E against 1.61 MT in FY11.
ƒ Realisation up ~23% YoY, cement volumes up ~27% YoY
Cement sales volumes increased ~27% YoY and ~38% QoQ to 0.51
MT on a pick-up in demand post monsoon. Realisations increased
~23% YoY to | 3399/tonne on account of price hikes taken during
the quarter but remained flat QoQ due to higher clinker sales.
ƒ EBITDA/tonne jumps on higher realisation & lower costs
The EBITDA/tonne increased significantly to | 779/tonne, mainly on
account of higher realisation and lower costs. The P&F cost declined
due to the use of efficient fuel while the raw material cost declined
on the back of a reduction in proportion of high cost limestone.
V a l u a t i o n
At the CMP of | 140, the stock is trading at 6.3x and 6.0x its FY12E and
FY13E earnings, respectively. The stock is trading at an EV/EBITDA of 4.1x
and 5.3x FY12E and FY13E EBITDA, respectively. On an EV/tonne basis,
the stock is trading at $45 and $41 its FY12E and FY13E capacities of 2 MT
and 3.25 MT, respectively. We have  valued the stock at $45/tonne its
FY13E capacity of 3.25 MT (~65% discount to the current replacement
cost). We have revised our target price to | 151/share with a HOLD rating.

Buy Mangalam Cement ; Target :Rs 139 ::ICICI Securities

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H i g h e r   c o s t s   e r o d e   m a r g i n …
Mangalam Cement reported net sales of | 124 crore and EBITDA of | 7.4
crore, which were above our respective estimates of | 109 crore and | 5.2
crore on account of higher-than-expected cement realisation, which came
at | 3370/tonne (our estimate: | 3048/tonne). EBITDA/tonne came at |
202/tonne against our expectation of | 146/tonne. Net profit of | 0.7 crore
was below our estimate of | 1 crore on account of lower-than-expected
other income. Cement volumes remained muted during the quarter
because of a slowdown in construction activities due to the monsoon
season. With cement capacity expansion of 1.25 MT in Aligarh (UP), total
capacity would reach 3.25 MT by end of FY13E. We expect cement sales
volume of 1.61 MTPA in FY12E (flat YoY) and 1.75 MTPA in FY13E (up
~9% YoY).
ƒ Net realisation up ~12% YoY (down ~4% QoQ), volumes muted
Cement sales volumes declined ~4% YoY (increased ~2% QoQ) to
0.37 MT due to sluggish demand during the quarter. The realisation
increased ~12% YoY to | 3370/tonne but declined ~4% QoQ due to
a correction in cement prices across its markets.
ƒ EBITDA declines ~67% QoQ to | 202/tonne on lower realisation
The EBITDA/tonne increased ~161% YoY mainly on account of
higher realisation, which negated the impact of an increase in input
costs. However, it declined ~67% on a QoQ basis due to a decline
in realisation coupled with increase in costs.

V a l u a t i o n
At the CMP of | 103, the stock is trading at 10.4x and 6.2x its FY12E and
FY13E earnings, respectively. The stock is trading at an EV/EBITDA of 5.3x
and 6x FY12E and FY13E EBITDA, respectively. On an EV/tonne basis, the
stock is trading at $41 and $39 its FY12E and FY13E capacities of 2 MT
and 3.25 MT, respectively. We have  valued the stock at $45/tonne its
FY13E capacity of 3.25 MT, which is ~65% discount to the current
replacement cost of $130/tonne. We have maintained our BUY rating on
the stock with a target price of | 139/share.

Buy Mangalam Cement, Target : | 139::ICICI Securities,

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C eme n t   u t i l i s a t i o n   r a t e s   t o   imp r o v e…
We met the management of Mangalam Cement to get an update on
development in its power and cement business. The following are the key
takeaways from the meeting.

• The proposed expansion of the 1.25 MTPA cement grinding unit
is expected to come on stream by Q4FY13. After the expansion,
the total cement capacity would reach 3.25 MTPA by FY13E. We
expect the capacity utilisation  rates to improve in H2FY12 on
account of a pick-up in demand during the period as the monsoon
season ends. We expect the utilisation rate at ~78% in FY12E and
~82% in FY13E as compared to ~76% in FY11
• The thermal captive power plant (CPP) addition of 17.5 MW has
increased the total thermal CPP capacity to 35 MW. Also, there is
~13.65 MW of wind power plant, which takes the total captive
power capacity to ~49 MW. The current power requirement for
the cement operation is ~22 MW. Hence, the company can sell
the surplus power on a merchant basis. However, the company
has not been selling surplus power as the merchant power rates
are in line with the current power generation cost of | 3.8 per unit
• The company has started using petcoke as fuel for the cement
and power plant operations as against domestic coal previously.
The calorific value of petcoke is ~8500 Kcal/kg

V a l u a t i o n
At the CMP of | 101, the stock is trading at 9.0x and 6.0x its FY12E and
FY13E earnings, respectively. It is trading at EV/EBITDA of 4.5x and 6.6x
FY12E and FY13E EBITDA, respectively. On an EV/tonne basis, the stock
is trading at $34 and $39 its FY12E and FY13E capacities, respectively. We
are maintaining our target price on the stock at | 139 with a BUY rating.
At our target price, the stock is trading at $45 per tonne (~65% discount
to replacement cost of $125 per tonne) at FY13E capacity of 3.25MT.



Cement sales volume to grow at ~5% CAGR during FY11-13E
As the utilisation rates are expected to increase in H2FY12 on account of
an expected pick-up in cement, we expect the FY12E utilisation rate at
~78% as against ~76% in FY11. In FY13E, the utilisation rate is expected
to increase to ~82%. The total cement  sales  volume  is  expected  to  grow
~4% YoY in FY12E to 1.66 MT and ~6% YoY in FY13E to 1.76 MT


Valuations
The company plans to expand its clinker capacity by 0.4 MTPA at its
existing unit and set up a new grinding unit of 1.25 MTPA in Aligarh (UP),
which are expected to be commissioned by Q4FY13. The total capital
outlay is ~| 400 crore over FY12E  and FY13E for the expansion plan.
After the expansion projects, the total cement capacity would reach 3.25
MTPA by FY13E. We expect cement sales volume of 1.66 MTPA in FY12E
and 1.76 MTPA in FY13E. EBITDA per tonne is expected at | 474 per
tonne in FY12E and | 475 per tonne in FY13E.
At the CMP of | 101, the stock is trading at 9.0x and 6.0x its FY12E and
FY13E earnings, respectively. It is trading at EV/EBITDA of 4.5x and 6.6x
FY12E and FY13E EBITDA, respectively. On an EV/tonne basis, the stock
is trading at $34 and $39 its FY12E and FY13E capacities, respectively. We
are maintaining our target price on the stock at | 139 with a BUY rating.
At our target price, the stock is trading at $45 per tonne (~65% discount
to replacement cost of $125 per tonne) at FY13E capacity of 3.25MT.

Exhibit : Valuation
Valuation remarks
FY13E Cement Capacity of MCL (MTPA) 3.25
Replacement Cost - MCL @ $45 per tonne 676
FY13E Net Debt (MCL) 298
Equity Value - MCL 378
FY10 Book Value of MTPL 20
Equity Value - MTPL @ 1x P/BV 20
Target Market Cap 398
NoS (Post merger) 2.85
Target Price 139
CMP 101
Potential Upside 38%
Source: Company, ICICIdirect.com Research

Buy Mangalam Cement; Target : Rs 139::ICICI Securities

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Mangalam Cement


H i g h e r   c o s t s   d e n t  p r o f i t a b i l i t y …
Mangalam Cement reported net sales of | 125.2 crore and net profit of |
11.2 crore in Q1FY12, in line with our respective estimates of  | 121.8
crore and  | 11.1 crore. Due to muted demand, cement volumes
remained sluggish (declined ~15% YoY, ~12% QoQ). However,
realisations moved up during the quarter (~11% YoY, ~6% QoQ) after
the pricing discipline maintained by companies in the northern region.
Total cost increased ~18% YoY, which pulled down the EBITDA to  |
614/tonne in Q1FY12. Going forward, cement volume & pricing will
remain muted in Q2FY12 & Q3FY12  due to onset of monsoon. We
expect EBITDA/tonne of | 667 in FY12E and | 689 in FY13E.
ƒ Cement volumes stay muted, price hikes lead to realisation growth
Mangalam Cement has reported blended sales volumes (cement &
clinker) of 0.36 MT, which declined ~15% YoY and ~12% QoQ due
to sluggish cement demand during the quarter. However, the
blended realisation increased ~11% YoY and ~6% QoQ to | 3498
per tonne on the back of higher cement prices in Q1FY12 led by
pricing discipline by the companies in the northern region.
ƒ EBITDA/tonne declines ~14% YoY on higher costs
The EBITDA/tonne declined ~14% YoY to | 614 in Q1FY12 mainly
due to higher employee and freight cost. However, the EBITDA per
tonne increased ~6% on a sequential basis as ~6% QoQ increase in
total cost was negated by the ~6% QoQ increase in realisation.
V a l u a t i o n
At the CMP of | 119, the stock is trading at 9.7x and 7.1x its FY12E and
FY13E earnings, respectively. It is trading at EV/EBITDA of 4.9x and 5.4x
FY12E and FY13E EBITDA, respectively. On an EV/tonne basis, the stock
is trading at $38 and $41 its FY12E and FY13E capacities, respectively. We
are maintaining our target price on the stock at | 139 with a BUY rating.
At our target price, the stock is trading at $45 per tonne (~65% discount
to replacement cost of $125 per tonne) at FY13E capacity of 3.25MT.

Buy Mangalam Cement; Higher realisation drives profitability… Target :Rs 139:: ICICI Securities,

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Higher realisation drives profitability…
Mangalam Cement reported net sales of | 134.2 crore and net profit of |
19.5 crore in Q4FY11, which is above our estimate of | 122.1 crore and |
3.2 crore, respectively. Better-than-expected cement realisation in
Q4FY11 and growth in other income helped the company to enhance
the bottomline. The company reported 22% QoQ growth in topline
mainly due to 19% QoQ growth in realisation. This negated the impact
of muted growth in sales volume of 2% QoQ (0.41 MT). The
combination of higher realisation accompanied by a decline in total cost
resulted in exceptional growth in operating profit to | 23.7 crore against
| 2.15 crore in Q3FY11.

Buy Mangalam Cement: Target : 136: Low realisation dents profitability: ICICI Securities

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Low realisation dents profitability…
Mangalam Cement reported net sales of | 109.7 crore in Q3FY11, which
is in line with our estimate of | 109 crore. During the quarter, it reported
a net loss of  | 2.5 crore against our loss estimate of  | 0.2 crore on
account of lower than expected other income and higher than expected
increase in input costs. The sales volume declined ~7% YoY mainly due
to a decline in December 2010 dispatches number in the wake of the
Gujjar agitation, which caused a disruption in rail services on the KotaDelhi route. The combination of falling sales volume accompanied by
poor pricing condition in the quarter resulted in a fall in operating profit
by ~95% YoY and ~28% QoQ to | 2.2 crore as against | 43.6 crore in
Q3FY10 and | 3 crore in Q2FY11. Hence, OPM declined by 2755 bps YoY
and 63 bps QoQ to 2% in Q3FY11 as the net realisation dipped ~20.2%
YoY and ~10% QoQ to | 2698 per tonne.