Buy Mangalam Cement; target of Rs 337: Angel Broking

Angel Broking`s research report on Mangalam Cement “Mangalam Cement (MCL), a BK Birla group company having its plant in Rajasthan, has expanded its cement capacity by 1.25mtpa (increase of 63%) to 3.25mtpa (as of end-FY2014). We expect MCL to report a healthy 21.8% volume CAGR over FY2014-16E on the back of improved outlook for cement demand (also MCL’s production in FY2014 was lower due to plant shut down for a few months for up-gradation, leading to lower base).” “With MCL’s grinding capacity now increased to 1.4x of clinker capacity post expansion (vs 1.2x earlier), it expects to increase the fly ash component in cement production from current 16% to 30-32% during FY2015E, closer to industry levels, which is expected to aid in OPM expansion. Also, in FY2014 MCL had undertaken plant shutdown to upgrade its Kiln which will help in reducing power and fuel consumption. Also, the new 1.25mtpa capacity, which is expected to contribute significantly to overall production volume, is also expected to be more energy efficient. Thus there would be a further reduction in the cost of cement production for the company. The realizations are also expected to improve due to strong demand recovery in the cement sector. We expect realization to improve by 7% CAGR over FY2014-16E. Overall, we expect EBITDA/tonne to improve from Rs310/tonne in FY2014 to Rs680/tonne in FY2016.” “At the current market price of Rs246, the stock is trading at trailing EV/tonne of $49 (on its 3.25mtpa installed capacity), which is at a large discount to its midcap peers (The peers like India cement, JK cement, JK lakshmi and Ramco Cement are trading at EV/tonne of $70, $75, $120 (including expanded capacity $104) and $121 respectively). The stock is trading at 12.6x and 7.9x its FY2015E and FY2016E EPS and 7.5x and 4.8x its FY2015E and FY2016E EV/EBITDA, respectively. We initiate coverage on Mangalam Cement with a Buy recommendation and target price of Rs337 based on EV/tonne of $60 and implying 6.5x FY2016E EV/EBIDTA. The EV/EBITDA target multiple is at a 10% discount to the company’s other midcap peers in the cement space,” says Angel Broking research report.  

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