Madras Cements reported a 9% year-over-year decline in net revenue to Rs. 700 crore for the first quarter of FY2011, mainly due to a 10.7% fall in cement prices. Operating profit declined 33% to Rs. 196 crore as operating margins contracted by 983 basis points to 27.9% due to higher fuel costs and lower prices. Net profit declined 48% to Rs. 73 crore for the quarter. Despite the decline in revenue and profits, the company maintained a buy rating based on an expected recovery in prices and continued presence in high-growth southern markets.

1. 1QFY2011 Result Update | Cement
August 5, 2010
Madras Cements BUY
CMP Rs101
Performance Highlights Target Price Rs139
Y/E March (Rs cr) 1QFY11 4QFY10 % chg (qoq) 1QFY10 % chg (yoy) Investment Period 12 Months
Net revenue 700 577 21.3 770 (9.0)
Operating profit 196 124 58.0 291 (32.7) Stock Info
OPM (%) 27.9 21.4 649bp 37.8 (983bp) Sector Cement
Net profit 73 29 147 138 (47.6) Market Cap (Rs cr) 2,394
Source: Company, Angel Research Beta 0.7
52 Week High / Low 140/91
Madras Cements (MAC) posted top-line decline of 9% yoy to Rs700cr, mainly due Avg. Daily Volume 152470
to a 10.7% fall in cement realisations to Rs3,345/tonne. Realisations in the Face Value (Rs) 1
southern region, where the company has predominant presence, declined due to
BSE Sensex 18,173
demand slowdown (0.7% growth in 1QFY2011) and increased capacity.
Nifty 5,447
However, the company’s despatches improved by 5.3% yoy to 2mn tonnes. We
maintain a Buy rating on the stock. Reuters Code MSCM.BO
Bloomberg Code MC@IN
OPM down 983bp yoy: On the operating front, MAC’s profit declined by 32.7%
yoy to Rs196cr, resulting in a 983bp decline in OPM to 27.9%. The decline was
due to a 10.7% decline in realisations coupled with a 23.7% yoy increase in Shareholding Pattern (%)
power and fuel costs. Further, profits of wind mill division declined by 21.6% yoy Promoters 42.0
to Rs21.7cr. The company’s net profit declined by 47.6% yoy to Rs73cr mainly MF / Banks / Indian Fls 27.2
due to the decline in operating profit. FII / NRIs / OCBs 8.2
Indian Public / Others 22.6
Outlook and valuation: We expect the pricing pressure in the southern region to
continue over the next few quarters, particularly in Andhra Pradesh, due to
reduced government spending on infrastructure and housing projects. However, Abs. (%) 3m 1yr 3yr
we expect MAC to enjoy slightly better realisations due to its predominant Sensex 6.3 14.3 20.0
presence in Tamil Nadu and lesser exposure to Andhra Pradesh. We maintain a MAC (12.7) (13.8) (38.9)
Buy rating on the stock with an SOTP-based Target Price of Rs139.
Key financials
Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
Net Sales 2,530 2,801 2,746 3,117
% chg 25.8 10.7 (2.0) 13.5
Net Profit 364 354 151 210
% chg (11.0) (2.7) (57.2) 38.5
FDEPS(Rs) 15.3 14.9 6.4 8.8
OPM (%) 30.8 30.6 20.6 21.7
P/E (x) 6.6 6.8 15.8 11.4
P/BV(x) 1.9 1.5 1.4 1.3
Rupesh Sankhe
RoE (%) 32.9 25.1 9.4 11.9
022-40403800 Ext 319
RoCE (%) 17.9 14.8 7.6 9.1 rupeshd.sankhe @angeltrade.com
EV/Sales (x) 1.8 1.7 1.6 1.3
EV/tonne 104 96 81 74 V Srinivasan
EV/EBITDA 6.0 5.6 8.0 6.2 022-40403800 Ext 330
v.srinivasan@angeltrade.com
Source: Company, Angel Research
Please refer to important disclosures at the end of this report 1

2. Madras Cements | 1QFY2011 Result Update
Exhibit 1: 1QFY2011 performance
Y/E March (Rs cr) 1QFY2011 4QFY2010 % chg (qoq) 1QFY2010 % chg (yoy) FY2010 FY2009 % chg
Net Sales 700 577 21.3 770 (9.0) 2,801 2,530 10.7
Net Raw Material Costs 84 39 116.3 115 (27.4) 398 362 10.0
(% of Sales) 12.0 6.7 15.0 14.2 14.3
Power & Fuel 174 169 3.1 141 23.7 596 604 (1.3)
(% of Sales) 24.9 29.3 18.3 21.2 23.9
Staff Costs 39 35 13.3 33 20.3 137 110 24.9
(% of Sales) 5.6 6.0 4.3 4.9 4.3
Freight & Forwarding 123 114 7.5 115 6.1 468 371 26.3
(% of Sales) 17.5 19.7 15.0 16.6 14.6
Other Expenses 85 97 (12.6) 74.6 14 331 305 8.5
(% of Sales) 12.1 16.8 9.7 12.2 12.1
Total Expenditure 505 454 11.3 479 5.4 1,944 1,752 11.0
Operating Profit 196 124 58.0 291 (32.7) 870 779 11.7
OPM (%) 27.9 21.4 37.8 30.6 30.8
Interest 35 38 (8.8) 38 (6.7) 151 111 36.3
Depreciation 54 53 1.8 45 19.2 196 138 42.4
Other Income 2 6 (72.4) 2 13.3 8 15 (49.7)
Extr. Income/(Expense) - - - - (1)
Provision for Taxation 36 10 269.5 71 (49.3) 177 182 (2.8)
(% of PBT) 33.2 25.0 34.0 33.3 33.4
Reported PAT 73 29 147.2 138 (47.6) 354 364 (2.7)
PATM 10.4 5.1 18.0 12.6 14.4
Equity Capital 23.8 23.8 23.8 23.8 23.8
EPS (Rs) 3.1 1.2 5.8 14.9 15.3
Adjusted PAT 73 29 147 138 (47.6) 354 364 (2.9)
Source: Company, Angel Research
Exhibit 2: Financial performance
(Rs cr) (%)
1,000 851 50
770
700 40
750 642 611 577
30
500
20
250 138 170
73 73 10
16 29
0 0
4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
Net Sales (LHS) Net Profit (LHS) OPM (RHS)
Source: Company, Angel Research
August 5, 2010 2

3. Madras Cements | 1QFY2011 Result Update
Exhibit 3: 1QFY2011- Actual vs. Angel estimates
(Rs cr) Actual Estimates Variation (%)
Net Sales 700 591 18.5
Operating Profit 196 156 25.6
Net Profit 73 48 52.4
Source: Company, Angel Research
Operational performance
During the quarter, MAC’s per tonne cement realisations declined by 10.7%
yoy to Rs3,345. However, realisations increased by 20.5% on a qoq basis. The
company’s operating profit per tonne of cement stood at Rs882 during the
quarter, down 37.3% yoy. Net profit per tonne stood at Rs258, down 56.4%
yoy, on account of increased depreciation cost.
Exhibit 4: Per-tonne analysis
% chg % chg
Particulars (Rs) 1QFY2011 4QFY2010 1QFY2010
(yoy) (qoq)
Realisation/tonne 3,345 2,776 3,743 (10.7) 20.5
Raw Material Cost/tonne 425 187 617 (31.1) 127.1
Power & Fuel Cost /tonne 884 818 753 17.4 8.1
Freight Cost/tonne 622 552 618 0.7 12.7
Operating Profit/tonne 882 599 1,406 (37.3) 47.6
Depreciation/tonne 273 256 257 6.0 6.7
Net Profit/tonne 258 142 591 (56.4) 81.1
Source: Company, Angel Research
Exhibit 5: Despatches and realisation trend
(mtpa) (Rs/tonne)
2.3 4,500
1.5 3,500
0.8 2,500
0.0 1,500
3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
Cement Despatches (LHS) Average Realisation(RHS)
Source: Company, Angel Research
August 5, 2010 3

4. Madras Cements | 1QFY2011 Result Update
Cement demand scenario in 1QFY2011
During 1QFY2011, all-India cement demand grew by 7% yoy. The central region
reported the highest growth of 12.3% yoy, while the western region reported the
second highest demand growth of 11.4% yoy. The northern and eastern regions
posted yoy growth of 9.2% and 9.1%, respectively, during the quarter. However,
the southern region reported a marginal 0.7% yoy increase. Among southern
states, Karnataka reported a healthy 10.5% yoy increase, while Tamil Nadu posted
3% yoy growth. However, Andhra Pradesh and Kerala reported decline of 5%
each. The decline in cement prices was due to low demand and increased
capacities.
Exhibit 6: 1QFY2011 - All-India demand scenario Exhibit 7: 1QFY2011 - South India demand scenario
(%) (%)
15 15
12.3 10.5
11.4
12 10
9.2 9.1
9 7
5 3
6
0
3 0.7
(5) Karnataka Tamil Nadu Andhra Kerala
0
(5.0) (5.0)
Central West North East South All-India
(10)
Source: Industry, Angel Research Source: Industry, Angel Research
Investment arguments
Major player in South, but limited presence in Andhra Pradesh: MAC is a
major cement player in the southern region, with total cement capacity of
10.5mtpa. The company’s despatches have grown at a 12% CAGR over
FY2007–10, aided by a 4.5mtpa increase in capacity over the same period.
Further, MAC, which is currently facing clinker shortage, is setting up a second
clinkerisation unit at its Ariyalur Plant, with capacity of 2mtpa. The total project
cost is estimated to be Rs600cr. Post this expansion, MAC’s cement capacity
would expand to 12.5mtpa by the end of FY2011. Thus, the company’s overall
capacity is set to more than double over FY2007–12E.
MAC derives nearly 50% of its cement revenue from Tamil Nadu and only 19%
from Andhra Pradesh, which is the worst affected region in terms of demand
slowdown and price correction. Thus, the company is expected to enjoy better
realisations as compared to players with major exposure to Andhra Pradesh.
August 5, 2010 4

5. Madras Cements | 1QFY2011 Result Update
Exhibit 8: Geography-wise revenue breakup (FY2010) Exhibit 9: Installed capacity
2% (mtpa)
16.0
8% 12.5 12.5
12.0 10.0 10.5
19% 47%
8.0
8.0 6.0
24%
4.0
0.0
Tamil Nadu Kerala Andhra Karnataka Others FY07 FY08 FY09 FY10 FY11E FY12E
Source: Company, Angel Research Source: Company, Angel Research
Installation of new captive power capacities to improve margins: MAC has been
adding up its windmill capacity to reduce dependence on the state grid for power
requirement. The company’s windmill capacity currently stands at 190MW, which
is sufficient to handle close to 75% of its total power requirements. Going ahead,
MAC is planning to invest Rs310cr to establish 85MW of captive thermal power
plant capacity, which includes a 60MW unit at Ariyalur and a 25MW plant at RR
Nagar.
Outlook and valuation: We expect pricing pressure in the southern region to
continue over the next few quarters on account of excess capacity and lack of
demand particularly in Andhra Pradesh due to reduced government spending on
infrastructure and housing projects. However, we expect MAC to enjoy slightly
better realisations, due to its predominant presence in Tamil Nadu and lesser
exposure to Andhra Pradesh. We maintain a Buy rating on the stock with an
SOTP-based Target Price of Rs139.
Exhibit 10: SOTP-based target price (FY2012E)
Particulars Parameter Value (Rs cr)
Target EV/tonne US $70 4,065
CPP* (275 MW) Rs4cr/MW 1,100
Market Cap (Rs cr) 3,318
No. of Shares (cr) 23.8
Target Price (Rs) 139
Source: Angel Research; Note: * CPP refers to Captive Power Plants
August 5, 2010 5

6. Madras Cements | 1QFY2011 Result Update
Exhibit 11: Change in estimates
(Rs cr) FY2011E FY2012E
Earlier Revised Var (%) Earlier Revised Var (%)
Net Sales 2,754 2,746 (0.3) 3,125 3,117 (0.3)
Operating Exp 2,211 2,180 (1.4) 2,418 2,441 1.0
Operating Profit 543 566 4.3 707 676 (4.5)
Depreciation 190 209 9.8 228 248 8.8
Interest 134 148 10.4 119 133 11.8
PBT 235 226 (3.8) 378 313 (17.1)
Tax 78 75 (4.4) 125 103 (17.3)
PAT 158 152 (4.1) 254 210 (17.4)
Source: Company, Angel Research
Exhibit 12: Key assumptions
Earlier Estimates Revised Estimates
Particulars FY11E FY12E FY11E FY12E
Installed Capacity - Cement (mtpa) 12.5 12.5 12.5 12.5
yoy growth (%) 19.1 - 19.1 -
Utilisation (%) 69 76 69 76
Despatches growth 9.1 10.4 9.1 10.4
Realisation growth (%) (14.0) 2.5 (14.0) 2.5
Source: Angel Research
Exhibit 13: One-year forward EV/tonne (US$)
12,000 EV $70 $90 $110 $130
9,000
EV (Rs cr)
6,000
3,000
0
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10
Source: Company, Angel Research
August 5, 2010 6

7. Madras Cements | 1QFY2011 Result Update
Exhibit 14: Recommendation summary
Company Reco. CMP Tgt. Price Upside FY2012E FY2012E FY2010-12E FY2012E FY2012E
(Rs) (Rs) (%) P/BV (x) P/E (x) EPS CAGR (%) RoCE (%) RoE (%)
ACC Neutral 817 - - 1.9 10.9 (7.5) 21.3 19.0
Ambuja Cements Neutral 115 - - 2.1 14.8 (3.5) 19.1 16.3
Grasim Ind. Buy 1,881 2,216 17.8 0.9 7.5 (10.9) 14.1 12.4
India Cements Buy 105 139 31.9 0.9 24.7 (39.7) 4.5 3.0
JK Lakshmi Buy 59 92 55.0 0.6 4.1 (2.3) 12.8 14.9
Madras Cements Buy 101 139 38.2 1.2 11.4 (23.1) 9.1 11.9
Ultratech Cement Buy 860 1,087 26.4 1.5 11.4 (7.9) 15.2 14.0
Source: Company, Angel Research
August 5, 2010 7

8. Madras Cements | 1QFY2011 Result Update
Profit and loss statement (Standalone)
Y/E March (Rs cr) FY07 FY08 FY09 FY10 FY11E FY12E
Net Sales 1,574 2,012 2,530 2,801 2,746 3,117
Total operating income 1,574 2,012 2,530 2,801 2,746 3,117
% chg 56 28 26 11 (2) 13
Total Expenditure 1,018 1,260 1,752 1,943 2,180 2,441
Net Raw Materials 214 248 362 398 453 485
Other Mfg costs 310 408 602 598 688 750
Personnel 57 81 110 137 147 173
Other 438 523 678 810 892 1,033
EBITDA 556 752 778 858 566 676
% chg 163.7 35.3 3.5 10.2 (34.0) 19.3
(% of Net Sales) 35.3 37.4 30.8 30.6 20.6 21.7
Depreciation& Amortisation 72 93 138 196 209 248
EBIT 484 659 641 662 358 427
% chg 232.4 36.1 (2.8) 3.2 (45.9) 19.5
(% of Net Sales) 30.8 32.8 25.3 23.6 13.0 13.7
Interest & other Charges 23 52 110 152 148 133
Other Income 8 9 15 20 16 19
(% of PBT) 1.6 1.5 2.8 3.9 7.3 6.0
Recurring PBT 469 617 546 530 226 313
% chg 303.6 31.6 (11.5) (2.8) (57.4) 38.5
Extraordinary Expense/(Inc.) - - - - - -
PBT (reported) 469 617 545 530 226 313
Tax 161 209 182 177 75 103
(% of PBT) 34.3 33.8 33.4 33.3 33.0 33.0
PAT (reported) 308 408 364 354 151 210
ADJ. PAT 308 408 364 354 151 210
% chg 285.7 32.5 (10.9) (2.8) (57.2) 38.5
(% of Net Sales) 19.6 20.3 14.4 12.6 5.5 6.7
Basic EPS (Rs) 26 34 15 15 6 9
Fully Diluted EPS (Rs) 26 34 15 15 6 9
% chg 288.9 34.5 (55.5) (2.7) (57.2) 38.5
August 5, 2010 8

9. Madras Cements | 1QFY2011 Result Update
Balance Sheet (Standalone)
Y/E March (Rs cr) FY07 FY08 FY09 FY10 FY11E FY12E
SOURCES OF FUNDS
Equity Share Capital 12 12 24 24 24 24
Preference Capital - - - - - -
Reserves& Surplus 654 942 1,236 1,534 1,646 1,826
Shareholders’ Funds 666 954 1,260 1,558 1,669 1,850
Total Loans 677 1,636 2,463 2,567 2,467 2,217
Deferred Tax Liability 226 363 490 585 585 585
Total Liabilities 1,569 2,952 4,214 4,710 4,721 4,651
APPLICATION OF FUNDS
Gross Block 1,799 2,714 3,918 4,811 4,911 5,511
Less: Acc. Depreciation 718 808 918 1,119 1,327 1,575
Net Block 1,081 1,906 3,000 3,693 3,584 3,936
Capital Work-in-Progress 178 576 635 318 418 268
Goodwill - - - - - -
Investments 89 89 89 89 89 89
Current Assets 615 779 914 1,135 1,150 992
Cash 57 23 39 35 25 13
Loans & Advances 365 452 456 532 532 532
Other 194 304 419 568 593 447
Current liabilities 395 402 440 546 541 654
Net Current Assets 220 378 473 589 609 338
Mis. Exp. not written off 2 3 16 21 21 21
Total Assets 1,569 2,952 4,214 4,710 4,721 4,651
August 5, 2010 9

10. Madras Cements | 1QFY2011 Result Update
Cash flow statement (Standalone)
Y/E March (Rs cr) FY07 FY08 FY09 FY10 FY11E FY12E
Profit before tax 469 617 545 530 226 313
Depreciation 72 93 138 196 209 248
Change in Working Capital (64) (72) 114 121 (49) 259
Less: Other income 8 9 15 20 16 19
Direct taxes paid 161 209 182 177 75 103
Cash Flow from Operations 308 420 600 651 295 698
(Inc)/ Decin Fixed Assets (326) (1,314) (1,262) (576) (200) (450)
(Inc)/ Dec in Investments - - - - - -
Other income 8 9 15 20 16 19
Cash Flow from Investing (318) (1,304) (1,247) (556) (184) (431)
Issue of Equity - - - - - -
Inc./(Dec.) in loans 75 958 828 103 (100) (250)
Dividend Paid (Incl. Tax) 35 56 56 50 21 29
Others 23 52 110 152 - -
Cash Flow from Financing 17 850 662 (98) (121) (279)
Inc./(Dec.) in Cash 7 (34) 16 (3) (10) (13)
Opening Cash balances 49 57 23 39 35 25
Closing Cash balances 57 23 39 35 25 13
August 5, 2010 10

11. Madras Cements | 1QFY2011 Result Update
Key ratios
Y/E March FY07 FY08 FY09 FY10 FY11E FY12E
Valuation Ratio (x)
P/E (on FDEPS) 3.9 2.9 6.6 6.8 15.8 11.4
P/CEPS 3.2 2.4 4.8 4.4 6.6 5.2
P/BV 1.8 1.3 1.9 1.5 1.4 1.3
Dividend yield (%) 2.9 4.7 2.3 2.1 0.9 1.2
EV/Sales 1.1 1.3 1.8 1.7 1.6 1.3
EV/EBITDA 3.0 3.5 6.0 5.6 8.0 6.2
EV / Total Assets 1.1 0.9 1.1 1.0 1.0 0.9
Per Share Data (Rs)
EPS (Basic) 25.5 34.3 15.3 14.9 6.4 8.8
EPS (fully diluted) 25.5 34.3 15.3 14.9 6.4 8.8
Cash EPS 31.5 42.1 21.1 23.1 15.1 19.2
DPS 2.9 4.7 2.3 2.1 0.9 1.2
Book Value 55.2 80.1 53.0 65.5 70.2 77.7
DuPont Analysis
EBIT margin 30.8 32.8 25.3 23.6 13.0 13.7
Tax retention ratio 65.7 66.2 66.6 66.7 67.0 67.0
Asset turnover (x) 1.2 0.9 0.7 0.6 0.6 0.7
ROIC (Post-tax) 24.0 19.6 12.0 10.0 5.1 6.1
Cost of Debt (Post Tax) 2.3 3.0 3.6 4.0 3.9 3.8
Leverage (x) 1.1 1.2 1.7 1.7 1.5 1.3
Operating ROE 48.2 40.1 26.8 20.2 6.9 9.1
Returns (%)
ROCE (Pre-tax) 35.1 29.1 17.9 14.8 7.6 9.1
Angel ROIC (Pre-tax) 41.5 37.1 22.2 17.0 8.4 10.0
ROE 58.2 50.4 32.9 25.1 9.4 11.9
Turnover ratios (x)
Asset Turnover (Gross Block) 0.9 0.9 0.8 0.6 0.6 0.6
Inventory / Sales (days) 27 34 41 48 58 48
Receivables (days) 13 12 11 16 19 13
Payables (days) 112 115 88 93 91 89
WC cycle (ex-cash) (days) 25 47 57 64 76 53
Solvency ratios (x)
Net debt to equity 0.8 1.6 1.9 1.6 1.4 1.2
Net debt to EBITDA 1.0 2.1 3.0 2.9 4.2 3.2
Interest Coverage (EBIT / Int.) 21.2 12.7 5.8 4.4 2.4 3.2
August 5, 2010 11

12. Madras Cements | 1QFY2011 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, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)
August 5, 2010 12