Buy Mangalam Cement; target of Rs 384: Ventura

Ventura's report on Mangalam Cement

"Mangalam Cement Ltd (Mangalam) is a small but operationally efficient cement manufacturer based in North India. Managalam has recently expanded its cement grinding capacity by 1.25 MT, taking the total capacity to 3.25 MT. Although the expansion has been undertaken after a period of 5+ years, its timing could not have been better. The Indian economy is poised for a U-turn with the election of a pro-reform government. Mangalam, with an expanded capacity, is well placed to benefit from the focused emphasis of the government on infrastructural development. With a presence in the lucrative cement deficit markets of North and Central India, limestone reserves of 50+ years, 100% captive power consumption and 60% coal linkage, Managalam is well placed in terms of operational capabilities. Increasing proportion of fly ash blended cement is expected to drive efficiencies and help boost EBITDA margin. In our opinion, EBITDA margin of the company has bottomed at 8% in FY14. With the Q1FY15 EBITDA margin at 16.3%, the company is expected to post a significant growth in net profits in the current fiscal. We expect Manglam to report a healthy revenue 2 year CAGR of 36% to Rs1,292 crore and a PAT growth of 97% to Rs114.7 crore by FY16E. The EPS is expected to expand nearly four times to Rs43 per share in FY16 from Rs11 per share in FY14."

"We initiate coverage on Magalam as a BUY with a Price Objective of Rs384, representing a potential upside of ~50% over a period of 12 months. We have assigned an EV/Tonne of $65 to arrive at the target price. At the CMP of Rs257, the stock is trading at an EV/EBITDA multiple of 3.9x FY16E and at an EV/Tonne of $45. The replacement cost is in the range of US$120-140 per tonne. Any announcement of further capacity expansion and a higher than expected pick-up in growth and margins are upside triggers to our target price," says Ventura research report.

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