Buy Mangalam Cement; target of Rs 365: ICICI Direct

Mangalam Cement reported a good set of Q1FY17 numbers. Revenues grew 6.0% YoY to Rs 224.1 crore (vs. I-direct estimate: Rs 207.4 crore) led by better realisations, up 5.9% YoY to Rs 3,705 (vs. I-direct estimate of Rs 3,700) due to strong presence in north, where prices remained healthy. On the other hand, sales volume of the company remained flat at 0.61 MT (vs. I-direct estimate of 0.56 MT). The company reported EBITDA of Rs 47.1 crore vs. EBITDA loss of Rs 4.0 crore in Q1FY16. EBITDA/tonne improved from a loss of Rs 68/t to profit of Rs 778/t mainly due to lower clinker production and decline in power cost (down 36.3% YoY) as pet coke prices were down 21.7% YoY.  

The demand recovery in the sector led by higher infra spends by the government, normal monsoon and Seventh Pay Commission is expected to boost company’s cement volumes over the next few years. This coupled with an improving pricing scenario in the company’s key markets is expected to result in revenue CAGR of 15.3% in FY16-18E. In addition, freight cost rationalisation, VAT incentives in Rajasthan and fuel cost savings is expected to boost margins. At the CMP of Rs 312, the stock is trading at an attractive valuation of 6.0x FY18E EV/EBITDA and an EV/tonne of US$46. Hence we maintain BUY with a revised target price of Rs 365/share (i.e. at 7.0x FY17E EV/EBITDA and EV/tonne of US$55).  For all recommendations, click here 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.