Madras Cements Limited - Sify.comim.sify.com/sifycmsimg/dec2009/Finance/14923523_Madras_Cements… · Madras Cements Limited BUY Target Price: ... Ramco Supergrade is the most popular

Firstcall India Equity Advisors Pvt Ltd

Madras Cements Limited

BUY Target Price: 129.00 CMP: Rs.113.55 Market Cap: Rs.27024.9mn. Date: 11 December,2009

Key Ratios:

Particulars FY08

A

FY09

A

FY10E FY11E

OPM(%) 38 31 38 38

NPM(%) 20 14 18 19

ROE(%) 43 29 33 28

ROCE(%) 26 18 24 23

P/BV(x) 2.88 1.26 1.44 1.04

P/E(x) 6.72 4.37 4.37 3.74

EV/EBDITA(x) 1.04 3.41 2.32 2.11

Debt

Equity(x)

1.71 1.95 1.42 1.10

Key Data:

Sector Cement

Face Value 1.00

52 wk. High/Low (Rs.)

128.40/57.50

Volume (2 wk. 83510

SYNOPSIS

We initiated the coverage Madras Cements Ltd of and set a target price of

Rs.129. for medium to long term gains.

Madras Cements Ltd is the flag ship

company of Ramco Group, a well known

business group of South India. It is based at Chennai.

The company is the fifth largest cement producer in the country. Ramco

Supergrade is the most popular cement brand in South India.

The company also produces Ready Mix Concrete and Dry Mortar products. In

addition, the company also operates one of the largest wind farms in the country.

The Grinding unit Singhipuram Village, Valapady Taluk,Salem District, Tamilnadu

with a capacity of 0.72MTPA was

commissioned during the quarter.

The topline of the company are expected to grow at a CAGR of 24% over 2008A to

2011E.

Share Holding Pattern:

V.S.R. Sastry

Vice President

Equity Research Desk

91-22-25276077

[email protected]

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

[email protected]


Table of Content

Investment Highlights ................................................................................................................... 3

Peer Group Comparison ............................................................................................................. 5

Financials ....................................................................................................................................... 8

Charts ........................................................................................................................................... 10

Outlook and Conclusion ........................................................................................................... 12

Industry Overview....................................................................................................................... 13


Investment Highlights

Results Updates (Q2 FY10)

The bottomline of the company for the quarter increased 50% yoy that is

Rs.1698.80mn from Rs.1135.70mn of same period of last year. Total revenue

for the second quarter stood at Rs.8513.80mn from Rs.6665.20 which is

27.7% increase than that of a year ago period. EPS for the quarter stood

at Rs.7.14 per equity share of Rs.1.00 each.

Expenditure of the company increased 17% YoY to Rs.5118.60mn from

Rs.4361.10mn of same period of last year. Interest expenses for the quarter

stood at Rs.375mn. OPM & NPM for the quarter stood at 40% and 20%

respectively.

Quarterly Results - Standalone (Rs in mn)

As at Sep - 09 Sep - 08 %Change

Net Sales 8513.80 6665.20 27.7

Net Profit 1698.80 1135.70 50

Basic EPS 7.14 4.77 50


The Grinding unit Singhipuram Village, Valapady Taluk,Salem District, Tamilnadu with a capacity of 0.72MTPA was commissioned during the

quarter.

Madras Cements to divest stake in Madras Sugars

Madras Cements has decided to divest its stake in a wholly owned

subsidiary, viz. Madras Sugars, which was incorporated for the purpose of

carrying out the sugar business. The paid-up capital of Madras Sugars is Rs.

1 million. The board of directors of the company has approved the

proposal in a meeting held on October 27, 2009.

Board recommends interim dividend

The board of directors of Madras Cements has recommended an interim

dividend of Re 1 per share for the financial year 2008-09 and

recommended a final dividend of Re 1 per share, at its meeting held on

August 5, 2009.

Company Profile

Madras Cements Ltd is the flag ship company of Ramco Group, a well known

business group of South India. It is based at Chennai.


The main product of the company is Portland Cement manufactured through

the five advanced production facilities spread over South India. The cement

capacity is 10 million tons per annum.

The company is the fifth largest cement producer in the country. Ramco

Supergrade is the most popular cement brand in South India.

The company also produces Ready Mix Concrete and Dry Mortar products. In

addition, the company also operates one of the largest wind farms in the

country .

Business Area

Cement and

Power generation from Windmills

Factories

MCL operates four plants with a total capacity of 8 MTPA.

o R R Nagar, Tamil Nadu (1.2 MTPA)

o Jayanthipuram, Andra Pradesh (3.6 MTPA)

o Alathiyur, Tamil Nadu (3.0 MTPA)

o Ariyalur, Tamil Nadu (2.0 MTPA)

o Mathod, Karnataka (0.2 MTPA)

The R R Nagar plant commenced operations in 1962 with 200 TPD. It

commissioned the first 1200 TPD dry plant in 1976. A second Kiln with a Capacity

of 650 TPD was added in the year 1993-94.

The Jayanthipuram Plant started the operations in 1988 with 2500 TPD and was

upgraded to 3200 TPD in 1992. It is equipped with a modern computer based

quality control system.


The Alathiyur plant Commenced operations in 1997 with 0.9 MTPA Capacity and

was upgraded by 0.2 MTPA in 1999-2000. It started the Line-2 in 2000-01 with a

capacity of 1.5 MTPA.

Alathiyur is the first plant in India to go in for 100% Mining by Surface Miners. It has

an enviro friendly and energy Efficient MMD Crusher for Lime Stone Crushing

Plant Operations

Ariyalur plant started the operation in 2009 with a capacity of 2 MTPA. It is well

equipped with modern quality control systems.

Technology Overview

Madras Cements Ltd is a trend-setter in adopting state-of-the-art technology for

the manufacture of Cement, Ready Mix Concrete and Dry Mortar Products. MCL is the first to bring the following technologies in South India's cement

industry.

o The FUZZY Logic Software System for process Controls o Pre-calciner technology o Most Modern Programmable Logic Controllers (PLC) o Surface Mining Technology o Vertical Mills for Cement Grinding o Latest and highly effective ESPs and Bag filters o Advanced X-Ray technology for Quality Control

Technology


Peer Group Comparison

Name of the

company

CMP

(As on 11

Dec,

2009)

Market

Cap.

(Rs. Mn.)

EPS

(Rs.)

P/E

(x)

P/BV

(x) Dividend(%)

Madras

Cements 113.55 27024.9 15.27 7.43

1.26 200

Dalmia

Cement(Bharat)

Ltd

146.65 11869.7 22.29 6.58 0.98 150

Binani Cement

Limited 67.35 13678.9 11.64 5.79

2.87 21

Prism Cement 42.85 12780.0 6.39 6.71 1.93 15

Key Concerns

Any change in the existing policies of Government of India and/or State

Governments or new policies, providing or withdrawing support to the industries in which the company operates or otherwise affecting these

industries, would adversely affect the supply and demand balance and

competition in markets in which the company operate there by

impacting the margins of the company.

The Company's exposure to currency risk arises out of the import of

materials like coal for its cement plants and machinery and equipment for

its projects.

Financials


12 Months Ended Profit & Loss Account (Standalone)

Particulars FY 08 A FY 09 A FY 10 E FY11 E

(Rs.Mn) 12m 12m 12m 12m

Net Sales 20,118.80 25,385.00 33508.20 38534.43

Other Income 94.7 69.6 80.04 88.04

Total Income 20,213.50 25,454.60 33588.24 38622.47

Expenditure -12,595.80 -17,519.60 -20775.1 -23891.35

Operating Profit 7,617.70 7,935.00 12813.16 14731.13

Interest -517 -1,100.10 -1518.14 -1669.95

Gross Profit 7,100.70 6,834.90 11295.02 13061.18

Depreciation -932.7 -1,377.20 -1914.3 -2105.7

Profit before Tax 6,168.00 5,457.70 9380.71 10955.44

Tax -2,085.20 -1,819.00 -3189.4 -3724.8

Profit after Tax 4,082.80 3,638.70 6191.27 7230.59

Extraordinary

Items 0.1 -3.5 - -

Net Profit 4,082.90 3,635.20 6191.27 7230.59

Equity Capital 119 238 238.00 238.00

Reserves 9,419.50 12,364.00 18,555.27 25,785.86

EPS 34.31 15.27 26.01 30.38

*A=Actual, E=Estimated

Quarterly Ended Profit & Loss Account (Standalone)


Particulars Mar 09 A June 09 A Sep 09 A Dec 09 E

(Rs.Mn) 3m 3m 3m 3m

Net Sales 6,460.20 7,695.90 8,513.80 8939.49

Other Income 3.70 15.8 20.5 21.53

Total Income 6,463.90 7,711.70 8,534.30 8961.02

Expenditure -4,727.50 -4,789.40 -5,118.60 -5453.09

Operating Profit 1,736.40 2,922.30 3,415.70 3507.93

Interest -299.40 -375 -375 -376.88

Gross Profit 1,437.00 2,547.30 3,040.70 3131.05

Depreciation -391.50 -450.6 -474.6 -498.33

Profit before Tax 1,045.50 2,096.70 2,566.10 2632.72

Tax -309.50 -712.5 -867.3 -889.82

Profit after Tax 736.00 1,384.20 1,698.80 1742.90

Extraordinary

Items -3.50 - - -

Net Profit 732.50 1,384.20 1,698.80 1742.90

Equity Capital 238 238 238 238.00

EPS 3.08 5.82 7.14 7.32

Charts


Comparative Graph

Outlook and Conclusion

At the current market price of Rs.113.55, the stock trades at a P/E of 4.37x and

3.74x for FY10E and FY11E respectively.

On the basis of EV/EBDITA, the stock trades at 2.32x and 2.11x for FY10E and

FY11E respectively.

Price to Book Value of the stock is expected to be at 1.44 and 1.04

respectively for FY10E and FY11E.

MADRAS CEMENTS BSE SENSEX


The Net sales of the company are expected to grow at a CAGR of 24% over

2008 to 2011E.

MCL is planning to set up two coal CPP of 40 MW each, both are expected to

be commissioned in March 2011. The new CPP in addition to the existing CPP

of 72MW, will take the total to 152MW & make MCL self sufficient in power.

We recommend BUY in this particular scrip with a target price of Rs.129.00.

for Medium to Long Term Gains.

Industry Overview

India is the world's second largest producer of cement after China, with cement

companies adding nearly eight million tonnes (MT) capacity in April 2009, taking the total installed capacity to 219 MT. A few of the leading manufacturers are

the UltraTech/Grasim combine, Dalmia Cements, India Cements, Holcim etc.

With the boost given by the government to various infrastructure projects, road

networks and housing facilities, growth in the cement consumption is

anticipated in the coming years. According to Jyotiraditya Scindia, Minister of

State, Ministry of Commerce and Industry, cement production could rise to

236.16 MT in FY11 and touch 262.61 MT in FY12.

With almost total capacity utilisation levels in the industry, cement despatches

have maintained a 10 per cent growth rate. Total despatches grew to 170 MT

during 200708 as against 155 MT in 200607.

Moreover, cement despatches were 15.95 MT in July 2009, showing a growth of

9.92 per cent as compared to 14.51 MT in July 2008. During July 2009, cement

production was 16.23 MT, registering a growth of 10.63 per cent as compared to

14.67 MT in July 2008. Between April to July 2009, cement production totaled

66.38 MT while cement despatches totaled 65.80 MT.

Technological change

Continuous technological upgrading and assimilation of latest technology has

been going on in the cement industry. Presently, 93 per cent of the total

capacity in the industry is based on modern and environment-friendly dry process technology and only 7 per cent of the capacity is based on old wet

and semi-dry process technology. There is tremendous scope for waste heat

recovery in cement plants and thereby reduction in emission level.


New Investments

JSW Cement, part of the OP Jindal Group, plans to set up cement units

near the groups steel plants at Kurnool, Andhra Pradesh, and

Vijayanagar, Karnataka. The units which will have a combined capacity

of 5.5 MT per annum will be set up at a cost of US$ 393.1 million.

Anil Ambani Group company Reliance Infrastructure will invest US$ 2.1

billion to set up cement plants with a total capacity of 20 MT per annum

over the next five years.

Reliance Cementation, an Anil Dhirubhai Ambani Group (ADAG)

company, plans to set up a 5 MT integrated cement plant in Yavatmal

district of Maharashtra at a cost of US$ 463.2 million.

Jaiprakash Associates Ltd has inked a MoU with state-owned Assam

Mineral Development Corporation Limited (AMDC) for setting up a 2 MT

per annum capacity cement plant at an estimated cost of US$ 221.36

million. Iron ore mining firm Rungta Mines (RML), the flagship company of SR

Rungta group, plans to set up a one million tonne cement plant in Orissa with an investment of around US$ 123 million.

Mergers and Acquistions (M&As)

Holcim strengthened its position in India by increasing its holding in

Ambuja Cement from 22 per cent to 56 per cent through various open

market transactions with an open offer for a total investment of US$ 1.8

billion. Moreover, it also increased its stake in ACC Cement with US$ 486

million, being the single largest acquirer in the cement sector.

Leading foreign funds like Fidelity, ABN Amro, HSBC, Nomura Asset

Management Fund and Emerging Market Fund have together bought

around 7.5 per cent in India's third-largest cement firm, India Cements

(ICL), for US$ 124.91 million.

Cimpor, the Portugese cement maker, paid US$ 68.10 million for Grasim

Industries' 53.63 per cent stake in Shree Digvijay Cement.

CRH Plc, the world's second biggest maker and distributor of building

materials, acquired a 50 per cent stake in My Home Industries Ltd for

almost US$ 372.64 million.

Vicat SA, a French cement maker acquired a 6.67 per cent stake in

Hyderabad-based Sagar Cement for US$ 14.35 million.

Government Initiatives


Government initiatives in the infrastructure sector, coupled with the housing

sector boom and urban development, continue being the main drivers of

growth for the Indian cement industry.

Increased infrastructure spending has been a key focus area over the last

five years indicating good times ahead for cement manufacturers.

The government has increased budgetary allocation for roads under

National Highways Development Project (NHDP). Appointing a coal regulator is looked upon as a positive move as it will

facilitate timely and proper allocation of coal (a key raw material) blocks

to the core sectors, cement being one of them.

Keeping in mind the global meltdown which is impacting the cement

companies in India, the government re-imposed the counter-veiling duty (CVD)

and special CVD on imported cement in January. This is likely to provide a level

playing field to domestic companies.

Road Ahead

According to a report by the ICRA Industry Monitor, the installed capacity is

expected to increase to 241 MTPA by FY 2010-end. India's cement industry is

likely to record an annual growth of 10 per cent in the coming years with higher

domestic demand resulting in increased capacity utilisation.

Moreover, according to the Centre for Monitoring Indian Economy (CMIE),

cement production is expected to grow by 8.1 per cent and demand for the

same is likely to rise by a healthy 7-7.5 per cent in FY 2009-10.

____________________________________________________

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but we do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of its

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.


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Madras Cements Limited - Sify.comim.sify.com/sifycmsimg/dec2009/Finance/14923523_Madras_Cements… · Madras Cements Limited BUY Target Price: ... Ramco Supergrade is the most popular