Madras Cements has target of Rs 275: PN Vijay

Madras Cements has target of Rs 275, says PN Vijay, Portfolio Manager.

Vijay told CNBC-TV18, "Madras Cements is a large cement producer. It’s headquartered in Tamil Nadu; in fact it’s a flagship company of the Ramco group of Tamil Nadu which has interest in various other businesses. It has a capacity of 11.5 million tonne, which makes it fifth biggest player in the Indian market, very low-key even though they are fifth."
He further added, "As far as the operating results are concerned cement companies have been having an excellent time since last one year and Madras Cements has been no exception. In the last quarter their volumes went up by about 20 percent, their sales went up by about 30 percent and net profit by about 26 percent or so and I expect this good run to continue in the next 12 months also."
"Some specific reasons why Madras Cements could go up quite well are that upgraded its capacity by 2.5 million tonne, which is now getting operational. So that should give a volume and bottomline uptick for the stock. Second, they have acquired some more backup power; in Tamil Nadu the electricity rates are some of the highest in the world, so they are adding about 3-3.5 mw of power, which should give them very good margin in the realizations per tonne."
"They did some smart forward buying of pet-coke (petroleum coke), which is a major raw material for cement companies. So they locked in themselves at a fairly low price, so that should help them. All in all I expect the topline, middle line, margin and the bottomline to grow quite handsomely and outperform the rest of the cement industry in the next 12 months."
"The share is trading at a very undemanding 10.5 times current earnings at the current price of Rs 190 and it’s a blue chip which has always rewarded its shareholders with bonuses etc. The risk in this stock is that it’s fairly illiquid, it’s not an UltraTech for example in terms of liquidity but a very safe sound stock and I would recommend at Rs 190 with a target price of about Rs 275 in the next 12 months." Disclosure: I have no personal holding in the above stock.