1. 4QFY2010 Result Update I Cement
May 25, 2010
Madras Cements BUY
CMP Rs99
Performance Highlights Target Price Rs142
Madras Cements’ (MAC) 4QFY2010 Top-line de-grew by 10.0% yoy to Investment Period 12 Months
Rs577cr (Rs642cr). The decline in the Top-line was despite a 30% yoy increase
in sales volume to 2.07mn tonnes. The realisation during the quarter stood at Stock Info
Rs2,795 per tonne, down 31.1% yoy and 17.1% qoq. The operating margins
Sector Cement
for the quarter stood at 21.4%, down 485bp yoy. The net profit for the quarter
declined by 59.9% yoy and stood at Rs29.4cr, which was in-line with our Market Cap (Rs cr) 2,355
estimates. At the CMP of Rs99, Madras Cements is trading at an EV/EBITDA
of 5.9x and an EV/tonne of US $66/tonne, according to its FY2012E Beta 0.8
estimates. We maintain a Buy on the stock. 52 WK High / Low 140/91
Operating profit down 26.6% yoy, due to a plunge in realisation: MAC Avg. Daily Volume 220367
suffered a 10.0% yoy decline in the Top-line, as its pre-dominant market Face Value (Rs) 1
based in the Southern Region grappled with over capacity and a demand
shortage. The company’s realisation for the quarter stood at around Rs2,795 BSE Sensex 16,022
per tonne (down 31.1% yoy, 17.1% qoq), as its 30% yoy sales volume
Nifty 4,807
increase was accompanied by a substantial price cut. Additionally, the full
benefit of the price hike carried out after the Union Budget is expected to be Reuters Code MC@IN
realised in April 2010. The company clocked an operating profit of Rs124cr,
Bloomberg Code MSCM@BO
down 26.6% yoy. Freight and forwarding costs were up by 11.6% yoy during
the quarter; the company commissioned 2mtpa of grinding capacity, which Shareholding Pattern (%)
helped in reducing the freight cost. On the Bottom-line front, the net profit
declined by 59.9% yoy to Rs29.4cr, primarily due to a poor operating Promoters 42.0
performance, coupled with a 28.2% yoy increase in the interest cost to MF/Banks/Indian FIs 26.6
Rs38.4cr, along with a 34.9% yoy increase in depreciation to Rs52.8cr.
FII/NRIs/OCBs 8.0
Outlook and Valuation: At the CMP of Rs99, Madras Cements is trading at an Indian Public 23.4
EV/EBITDA of 5.9x and an EV/tonne of US $66/tonne, according to its
FY2012E estimates. On the valuation front, we have valued MAC at an Abs. (%) 3m 1yr 3yr
average of a Target EV/EBITDA of 6x and an EV/tonne of US $65/tonne,
Sensex (1.4) 15.2 11.7
which is at a discount to the replacement cost, to arrive at a Target Price of
Rs142. We maintain a Buy on the stock.
MAC (8.4) (10.9) (29.3)
Key Financials
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 2,530 2,801 2,754 3,125
% chg 25.8 10.7 (1.7) 13.5
Adj. Net Profit 364 354 158 254
% chg (11.0) (2.7) (55.4) 60.9
OPM (%) 30.8 30.6 19.7 22.6
EPS (Rs) 15.3 14.9 6.6 10.7
P/E (x) 6.5 6.7 14.9 9.3
P/BV (x) 1.9 1.5 1.4 1.2 Rupesh Sankhe
RoE (%) 32.9 25.0 9.7 14.0 Tel: 022 – 4040 3800 Ext: 319
RoCE (%) 17.9 15.4 8.0 10.9 E-mail: rupeshd.sankhe@angeltrade.com
EV/Sales (x) 1.9 1.6 1.6 1.3
V Srinivasan
EV/EBITDA (x) 6.1 5.3 8.3 5.9
Tel: 022 – 4040 3800 Ext: 330
EV/Tonne (US$) 105 91 80 66 E-mail: v.srinivasan@angeltrade.com
Source: Company, Angel Research
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
2. Madras Cements I 4QFY2010 Result Update
Exhibit 1: 4QFY2010 Performance
Y/E March (Rs cr) 4QFY10 4QFY09 % chg FY10 FY09 % chg
Net Sales 577.5 641.9 (10.0) 2,814 2,531 11.2
Cons. of Raw Material 38.7 117.7 (67.1) 398.4 362.4 10.0
(% of Net Sales) 6.7 18.3 14.2 14.3
Power and Fuel 169.0 149.3 13.2 596.3 603.9 (1.3)
(% of Net Sales) 29.3 23.3 21.2 23.9
Staff Costs 34.8 29.0 19.9 137.3 110.0 24.9
(% of Net Sales) 6.0 4.5 4.9 4.3
Freight & Forwarding 114.0 102.1 11.6 468.4 370.8 26.3
(% of Net Sales) 19.7 15.9 16.6 14.6
Other expenses 97.2 75.0 29.7 343.6 305.1 12.6
(% of Net Sales) 16.8 11.7 12.2 12.1
Total Expenditure 453.6 473.1 (4.1) 1,944 1,752 11.0
Operating Profit 123.8 168.8 (26.6) 869.8 778.8 11.7
OPM (%) 21.4 26.3 30.6 30.8
Interest 38.4 29.9 28.2 150.9 110.7 36.3
Depreciation 52.8 39.2 34.9 196.1 137.7 42.4
Other Income 6.5 4.5 45.0 7.6 15.1 (49.7)
Profit before Tax 39.1 104.2 (62.4) 530.4 545.4 (2.7)
Current Tax 9.8 31.0 (68.4) 176.8 181.9 (2.8)
(% of PBT) 25.0 29.7 33.3 33.4
Profit after Tax 29.4 73.2 (59.9) 353.7 363.5 (2.7)
EPS (Rs) 1.2 3.1 14.9 15.3
Source: Company, Angel Research
Operational Highlights
The company’s per tonne cement realisation was down by 31.1% yoy during the
quarter, and stood at Rs2,795. The company’s operating profit per tonne stood at
Rs599 during the quarter, down 43.8% yoy. The net profit per tonne stood at Rs142,
down 69.2% yoys, on account of an increase in the Interest and depreciation costs.
Exhibit 2: Per tonne analysis (Rs)
yoy qoq
4QFY10 3QFY10 4QFY09
chg (%) chg (%)
Realisation/tonne 2,795 3,373 4,055 (31.1) (17.1)
Raw Material Cost/tonne 187 746 744 (74.8) (74.9)
Power & Fuel Cost /tonne 818 744 943 (13.3) 10.0
Freight & Forwarding Cost/tonne 552 604 645 (14.5) (8.7)
Operating Profit/tonne 599 617 1,066 (43.8) (2.9)
Depreciation/tonne 256 282 248 3.2 (9.4)
Net Profit/tonne 142 89 462 (69.2) 60.1
Source: Company, Angel Research
May 25, 2010 2
3. Madras Cements I 4QFY2010 Result Update
Realisation plunges due to excess supply
MAC is predominantly a South India based player and derives more than 90% of its
revenue from this region. The supply in this region has grown at the highest rate in
India. However, the demand has not kept pace with the supply. The demand growth
in the region has been affected due to political uncertainity in the state of Andhra
Pradesh.
Exhibit 3: Geographical Break-up of MAC’s FY2009 revenue
2%
8%
19% 47%
24%
Tamil Nadu Kerala Andhra Pradesh Karnataka Others
Source: Angel Research
MAC’s capacity has increased from 6mtpa to 10.5mtpa over FY2007-10. During the
quarter, the company had to reduce the prices of cement to counter the excess
supply in the market. Its realisation during 4QFY2010 was the lowest in more than 8
quarters.
Exhibit 4: Quarterly Sales Volume and Realisation
mn tonnes Rs/tonne
2.5 5,000
2.0 4,000
1.5 3,000
1.0 2,000
0.5 1,000
0.0 0
1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10
Cement Volumes Average Realisation(RHS)
Source: Company, Angel Research
May 25, 2010 3
4. Madras Cements I 4QFY2010 Result Update
Capacity to be bolstered by 2mtpa
MAC is in the process of raising its capacity by 2mn tonnes to 12.49mn tonnes at a
cost of Rs630cr. The new unit will be in addition to the existing unit at Ariyalur, and
is expected to be operational by June 2011. Moreover, the company is also
planning to invest another Rs310cr to set up an 85MW captive thermal power
capacity. Out of the planned Thermal power capacity, 60MW would come up in
Ariyalur, while 25MW would come up at RR Nagar. MAC currently has a total wind
power capacity of 186MW.
Exhibit 5: Installed Capacity
mtpa
14 12.5
12 10.5 10.5
10.0
10
8.0
8
6.0
6
4
2
0
FY07 FY08 FY09 FY10 FY11E FY12E
Source: Company, Angel Research
Outlook and Valuation
All the frontline states in the southern region, like Andhra Pradesh, Tamil Nadu and
Karnataka, had been witnessing low demand in the recent months. The industry had
also witnessed aggressive inter-regional stock movement, pending the expansions in
the other regions, which exerted pressure on the prices and profitability. Overall, the
cement companies have been reporting strong sales volumes, on the back of new
capacities coming on stream, which has enabled most of the cement manufacturers
to increase their total cement production. Cement capacity addition in India during
FY2010 stood at 27mn tonnes, taking the total capacity of the sector to around
252mtpa at the end of FY2010. Going ahead, we expect the industry to add around
41mn tonnes of capacity through FY2011-12E.
The cement prices rose in the southern regions in March to April, 2010, due to
distribution constraints, on the back of a shortage in the availability of rail wagons
and due to load shedding. The pricing environment was extremely challenging –
during the first week of May, the prices in Hyderabad fell from Rs215 to Rs195 (per
50 kg bag), while those in Tamil Nadu fell from Rs260 to Rs240.
All-India demand is expected to remain robust, but accelerated capacity additions
and the stabilisation of new capacities would exert pressure on prices after May
2010.
May 25, 2010 4
5. Madras Cements I 4QFY2010 Result Update
Exhibit 6: Valuation based on EV/EBITDA multiple and Asset Replacement (FY2012E)
Target EV/EBITDA (x) 6 Target EV/tonne (US $) 65
EV (Rs cr) 4,717 EV (Rs cr) 4,407
CPP(270 MW) 1,080
Market Cap (Rs cr) 3,138 Market Cap (Rs cr) 3,608
No of shares 23.8 No. of shares (cr) 23.8
Fair Price 132 Fair Price (Rs) 152
Source: Angel Research
On the valuation front, we have valued MAC at an average of a Target EV/EBITDA
of 6x and an EV/tonne of US $65/tonne, which is at a discount to the replacement
cost, to arrive at a Target Price of Rs142. We maintain a Buy on the stock.
Exhibit 7: 1-year forward EV/EBITDA band
EV (Rs cr)
10,000
8,000
6,000
4,000 8x
6.5x
5x
2,000 3.5x
0
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10
Source: Company, Angel Research
Exhibit 8: 1-year forward EV/tonne band
12,000
9,000
$ 130
EV (Rs cr)
$110
6,000
$90
$70
3,000
0
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10
Source: Company, Angel Research
May 25, 2010 5
6. Madras Cements I 4QFY2010 Result Update
Profit & Loss Statement (Standalone) (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E
Net Sales 1,574 2,012 2,530 2,801 2,754 3,125
Other operating income
Total operating income 1,574 2,012 2,530 2,801 2,754 3,125
% chg 56.1 27.8 25.8 10.7 (1.7) 13.5
Total Expenditure 1,018 1,260 1,752 1,944 2,211 2,418
Net Raw Materials 214 248 362 398 460 492
Other Mfg costs 310 408 602 596 698 761
Personnel 57 81 110 137 149 166
Other 438 523 678 812 905 999
EBITDA 556 752 778 857 543 707
% chg 163.7 35.3 3.5 10.1 (36.6) 30.2
(% of Net Sales) 35.3 37.4 30.8 30.6 19.7 22.6
Depreciation& Amortisation 72 93 138 196 190 228
EBIT 484 659 641 661 353 479
% chg 232.4 36.1 (2.8) 3.1 (46.6) 35.7
(% of Net Sales) 30.8 32.8 25.3 23.6 12.8 15.3
Interest & other Charges 23 52 110 151 134 119
Other Income 8 9 15 20 17 19
(% of PBT) 1.6 1.5 2.8 3.9 7.0 5.0
Share in profit of Associates
Recurring PBT 469 617 546 530 235 378
% chg 303.6 31.6 (11.5) (2.8) (55.7) 60.9
Extraordinary Expense/(Inc.) 0 0 0 (0) - -
PBT (reported) 469 617 545 531 235 378
Tax 161 209 182 177 78 125
(% of PBT) 34.3 33.8 33.4 33.3 33.0 33.0
PAT (reported) 308 408 364 354 158 254
Add: Share of earnings of
associate
Prior period items
ADJ. PAT 308 408 364 354 158 254
% chg 285.7 32.5 (10.9) (2.8) (55.4) 60.9
(% of Net Sales) 19.6 20.3 14.4 12.6 5.7 8.1
Basic EPS (Rs) 25.5 34.3 15.3 14.9 6.6 10.7
Fully Diluted EPS (Rs) 25.5 34.3 15.3 14.9 6.6 10.7
% chg 288.9 34.5 (55.5) (2.7) (55.4) 60.9
May 25, 2010 6
7. Madras Cements I 4QFY2010 Result Update
Balance Sheet (Standalone) (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
SOURCES OF FUNDS
Equity Share Capital 12 12 24 24 24 24
Preference Capital
Reserves& Surplus 654 942 1,236 1,541 1,676 1,894
Shareholders Funds 666 954 1,260 1,564 1,700 1,918
Minority Interest
Total Loans 677 1,636 2,463 2,338 2,238 1,988
Deferred Tax Liability 226 363 490 490 490 490
Total Liabilities 1,569 2,952 4,214 4,393 4,428 4,396
APPLICATION OF FUNDS
Gross Block 1,799 2,714 3,918 4,168 4,468 5,068
Less: Acc. Depreciation 718 808 918 1,114 1,304 1,532
Net Block 1,081 1,906 3,000 3,054 3,164 3,536
Capital Work-in-Progress 178 576 635 685 560 210
Goodwill
Investments 89 89 89 89 89 89
Current Assets 615 779 914 1,064 1,097 1,104
Cash 57 23 39 107 41 110
Loans & Advances 365 452 456 456 456 456
Other 194 304 419 501 600 537
Current liabilities 395 402 440 516 498 559
Net Current Assets 220 378 473 549 599 545
Mis. Exp. not written off 2 3 16 16 16 16
Total Assets 1,569 2,952 4,214 4,393 4,428 4,396
Cash Flow Statement (Standalone) (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Profit before tax 469 617 545 531 235 378
Depreciation 72 93 138 196 190 228
Change in Working Capital (64) (72) 114 144 18 242
Less: Other income 8 9 15 20 17 19
Direct taxes paid 161 209 182 177 78 125
Cash Flow from Operations 308 420 600 674 349 705
(Inc)/ Decin Fixed Assets (326) (1,314) (1,262) (300) (175) (250)
(Inc)/ Dec in Investments (0) (0) 0 - - -
Other income 8 9 15 20 17 19
Cash Flow from Investing (318) (1,304) (1,247) (280) (158) (231)
Issue of Equity - (0)
Inc./(Dec.) in loans 75 958 828 (125) (100) (250)
Dividend Paid (Incl. Tax) 35 56 56 50 22 36
Others 23 52 110 151 134 119
Cash Flow from Financing 17 850 662 (326) (256) (405)
Inc./(Dec.) in Cash 7 (34) 16 69 (66) 69
Opening Cash balances 49 57 23 39 107 41
Closing Cash balances 57 23 39 107 41 110
May 25, 2010 7
9. Madras Cements I 4QFY2010 Result Update
Research Team Tel: 022-4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement Madras Cements
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies’ Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.
Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel : (022) 3952 4568 / 4040 3800
Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:
INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM /
CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302
May 25, 2010 9
