Buy Madras Cement, tgt Rs 3430: Emkay

Emkay research has maintained buy rating on Madras Cement with target price of Rs 3430 in its July 02, 2008 report. "Madras Cement Ltd’s (MCL) Q4FY2008 net profit at Rs 761 million is sharply below our expectations of Rs 1.17 billion mainly on account of higher than expected costs and higher interest outgo for the quarter. Revenues for the quarter grew by a healthy 21.8% yoy to Rs 5.3 billion on back of a 5.1% yoy growth in cement volumes and 15.9% yoy growth in cement realizations. With improvement in cement realizations, MCL operating profits for the quarter stood at Rs 1.64 billion, marking a growth of 23.3% yoy, however the OPM registered a muted improvement of 40 bps to 31%. On the cost front the trend of cost push continued as total cost per ton increased by 15.3% yoy to Rs 2465 per ton. Power and fuel increased by 36.3% yoy to Rs 822 cost per ton while freight cost increased by 10% to Rs 569 per ton. Interest charges for the quarter increased significantly by 362% to Rs 275 million, on account of commissioning of its new unit at Jayantipuram. The same is significantly higher than our expectation of Rs 110 million. It seems that company has charged off the pre-operative interest on new unit during this quarter itself."

"On account of sharp increase in interest cost, the net profit for quarter grew at a muted pace of 7.3% as against EBIDTA increase of 23.3%. On account of lower EBIDTA margins we are downgrading our EPS estimates for FY2009 by 14% and by 9% for FY2010. To factor in the earnings downgrade and sharp fall in the valuation of its peers, we are downgrading our price target of MCL to Rs 3430 (earlier target Rs 4820). At current levels the stock is trading at attractive valuations of 7X its FY2009 earnings and USD 98 per tonne for its FY2009 capacity. We maintain our BUY recommendation on the stock with a price target of Rs 3430" according to Emkay report.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.