Madras Cement, BUY

Madras Cement, BUY

Price Rs3,878 Target Price Rs4,820

Rock solid performance

Madras Cement Ltd’s (MCL) Q3FY2008 net profit at Rs1.1 billion is ahead our expectations primarily because of better than expected cement realisation, which stood at Rs3655 per tonne. Sales for the quarter grew by 31% yoy to Rs512 bn driven entirely by a 29.7% growth cement realisation as the volumes (1.4 mn tonne) for the quarter grew by 1%. Volumes were muted on account of capacity constraints. With strong growth in cement realizations, MCL operating profits for the quarter stood at Rs1.9 billion, marking a growth of 49% yoy as OPMS improved by 450 bps to 37.2%. On the cost front the trend of cost push continued as total cost increased by 21% yoy to Rs2295 per tonne. Net profit for the quarter stood at Rs1.1 bn, registering a growth of 62.4% yoy. Over past 3 months cement prices in southern region have been firm at Rs245-250. Moreover we remain fairly confident of demand supply equation in the Southern region as against Northern region. We are introducing our FY2010 earnings estimates for Madras cement and the EPS for the same stands at Rs453. At current levels the stock is trading at attractive valuations of 9X its FY2009 earnings and 5.3X its FY2009 EBIDTA. On EV/tonne basis the stock trades at USD 126 per tonne for its FY2009 capacity as compared to its enterprise replacement cost of USD 157 per tonne. We maintain our BUY recommendation on the stock with a price target of Rs4820.

MK, 5 February 2008, Sensex 18,660