Recommendations » India

Madras Cements 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, Madras Cements (MC) posted a strong performance, with net profit surging by 76.7% yoy to Rs.77cr. Strong bottom-line performance was on account of both 19.1% yoy growth in dispatches (though on a lower base) and 8.6% yoy growth in realization. We remain Neutral on the stock.

OPM at 28.0%, aided by improvement in realization: MC registered 27.9% yoy top-line growth to Rs.741cr, driven by 29.4% yoy growth in the cement division’s revenue. However, revenue of the windmill division fell by 38.8% yoy to Rs.7.7cr. Production discipline in southern India during 3QFY2012 led to the improvement in cement realization by 8.6% yoy to Rs.4,245/tonne. Dispatches grew by 19.1% yoy to 1.73mn tonnes (though on a low base, as dispatches had declined by 19.7% yoy to 1.45mn tonnes in 3QFY2011). However, OPM improved marginally by 243bp yoy to 28.0%, as the increase in per tonne freight costs and other expenses (up 15.6% and 20.1% yoy, respectively) eroded most part of realization growth. During the quarter, depreciation increased by 13.1% yoy as the company had higher captive power capacity during the quarter.

Outlook and valuation: Going ahead, we expect MC to post a 13.0% and 34.0% CAGR in its top line and bottom line, respectively, over FY2011-13E. At the CMP, the stock is trading at moderate valuations of EV/tonne of US$77 on current capacity of 12.5mtpa (US$53 on FY2013E capacity). However, considering its unfavorable locational presence and risk of margin pressure (if ongoing production discipline in southern India breaks down), we continue to maintain our Neutral view on the stock.