Stock Market Result Update on Madras Cements for 1QFY2012

Stock Market Result Update on Madras Cements for 1QFY2012 with a Neutral recommendation.

For 1QFY2012, Madras Cements (MAC) posted robust performance, with net profit surging by 35.1% yoy and 53.8% qoq to `98cr. The impressive performance was on account of a 25.2% yoy improvement in realisation due to high cement prices sustained in the company’s prime markets in the southern region. However, dispatches at ~1.74mn tonnes declined by 11.2% yoy due to a low demand scenario in the south. We remain Neutral on the stock.

OPM at robust 32.5%: MAC registered 9.6% yoy top-line growth to `764cr, due to a 25.2% increase in cement realisation to ~`4,207/tonne. Realisation was higher by 7.4% on a sequential basis as well. The company continued to face muted cement demand due to political uncertainty in Andhra Pradesh and slow pick-up in Tamil Nadu post elections. On the operating front, the company’s profit rose by 27% yoy due to spike in realisation and high captive power consumption, resulting in a 445bp expansion in OPM to 32.5%. MAChad commissioned 40MW of new thermal capacity in FY2011. Net profit for the quarter rose by 35.1% yoy to `98cr. 

Outlook and valuation: We expect the company’s dispatches to remain muted in the next few months due to the onset of monsoons in Andhra Pradesh and Tamil Nadu. Although cement prices have been sustained at healthy levels in the south despite low demand, prices are expected to correct going ahead if the demand situation weakens further. We expect MAC to post a CAGR of 12.7% in its bottom line over FY2011–13E. At the CMP, the stock is trading at EV/EBITDA of 5.9x and EV/tonne of US$77 on FY2013 estimates.  We remain Neutral on the stock.