Buy Madras Cements; target of Rs 300: Motilal Oswal

Motilal Oswal`s research report on Madras Cements

“Madras Cements, Volumes grew 0.5 percent YoY (13 percent QoQ) to 2.2MT (v/s our estimate of 2.36MT). Realization grew 8.4 percent YoY but was flat QoQ at INR4,465/ ton (v/s our estimate of INR4,646/ton), despite a seasonally strong quarter. Net sales grew 1.7 percent YoY (declined 6 percent QoQ) to INR9.3b.”

“EBITDA declined 29 percent YoY (30 percent QoQ) to INR1.4b (v/s our estimate of INR2.6b). EBITDA margin contracted ~7pp YoY (8pp QoQ) to 15.2 percent. Cement EBITDA/ton declined by INR176 YoY (INR264 QoQ) to INR740. The sequential decline in profitability was driven by flattish realization, and higher freight cost (+INR90/ton) and other expenditure (+INR109/ton). Energy cost moderated sequentially due to softening of imported coal prices. Other expenditure was up by INR220m due to increase in ad spends necessitated by entry into the eastern market (on dealer network, brand building, etc). PAT declined 35 percent YoY (24 percent QoQ) to INR642m, led by lower depreciation, interest and effective tax rate.”

“We are downgrading our EPS estimates for FY14/15 by 9 percent/2 percent to factor in (1) change in realization estimates to INR6.5/ bag for FY14 (INR13.5/bag earlier) and to INR15/bag for FY15 (INR12.5/bag earlier), (2) higher escalation in freight cost and other expenditure for entry into eastern market, and (3) lower interest and depreciation in FY14/15. The stock trades at 7.9x FY15E EPS, and at an EV of 4.6x FY15E EBITDA and USD82/ ton. We maintain Buy, with a target price of INR300 (35 percent upside). The board has approved a dividend of INR3/share (v/s INR2.5/share in FY12),” says Motilal Oswal research report.  

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