Post on 05-Jun-2018
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
vsrsastry@firstcallindiaequity.com
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
drsastry@firstcallindia.com
Firstcall India Equity Advisors Pvt Ltd
Table of Content
Investment Highlights ................................................................................................................... 3
Peer Group Comparison ............................................................................................................. 5
Financials ....................................................................................................................................... 8
Charts ........................................................................................................................................... 10
Outlook and Conclusion ........................................................................................................... 12
Industry Overview....................................................................................................................... 13
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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
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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.
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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.
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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
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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
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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)
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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
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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
Firstcall India Equity Advisors Pvt Ltd
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.
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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
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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.
____________________________________________________
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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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