Accumulate Madras Cements; target Rs 250: Emkay
Brokerage house Emkay Global Financial Services is bullish on Madras Cements (MCL) and has recommended accumulate rating on the stock with a target price of Rs 250 in its July 22, 2013 research report.
July 24, 2013 / 12:46 IST
Emkay's research report on Madras Cements (MCL)
MCL to set up a 1mtpa grinding unit at Vizag (slated for commissioning in Q2FY14). The unit to help expand reach in Vizag and Odisha markets, apart from helping freight cost reductionFY13 debt reduction of just Rs0.5bn: higher working capital (Rs2.5bn) and higher capex restrict debt repayment. Interest cost higher by 100bps, led by the rollover of low-cost debt Cut FY14E/15E EPS by 10 percent/7 percent, led by lower cement realizations and high currency assumptions (increases MCL’s imported fuel cost). Reset the target price to Rs250MCL remains the preferred mid-cap pick. Low cost structure, robust FCF and minimal capex plans to drive accelerated debt repayment, helping stock re-rating."With annual cash generation of Rs7-8bn and a capex of just Rs2.5-3bn, we expect MCL to reduce its debt by Rs7bn over FY13-15E, leading to net debt/equity reducing from 1.06x in FY13 to 0.6x by FY15E. Further, with a rebound in cement prices in MCL’s key markets and robust volume growth (FY13-15E volumes CAGR of 7.5 percent) and low cost operation, we expect the company to deliver a robust 13 percent EPS (CAGR) over FY13-15E. This, we believe, would drive stock re-rating, helping stock to out-performance. Valuations at 7.0x/5.5x EV/EBIDTA and EV/T of USD93/81 for FY14E/15E, which is at a 40 percent discount to valuations of large-cap cement stocks (FY15 PER of 17x and EV/EBIDTA of 9.5x) remain attractive and leave adequate upsides. We have cut FY14E/15E earnings by 10 percent/7.2 percent to factor in a slightly lower cement price and higher INR=USD currency assumption (MCL imports 80 percent of its fuel requirements). In line with our earnings cut, we reset our price target to Rs250 (Rs260 earlier). Accumulate the stock," says Emkay Global Financial Services research report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies 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. 
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