Buy Mangalam Cement; target of Rs 453: SPA Financial

SPA Financial's research report on Mangalam Cement

MCL reported steady set of numbers largely in line with expectations backed by improved pricing in its key markets & appreciable control on operating costs. While top-line declined by 5.2%, company reported net profit of INR 47 mn as against a loss of INR 170 mn reported in Q2FY16. This was driven by 4.6% YoY surge in realizations & 8.7% savings in operating cost/tonne. 0.5 mt Aligarh grinding commissioned operations from Sept 2016 onwards. We retain our BUY recommendation on the stock with a target of INR 453.

Cement demand after languishing in low single digits for last 3 years, is expected to recoup back to +1.5x GDP over the next few years, as infrastructure projects and initiatives announced by the Government come on stream. Commissioning of new capacities along with self sufficiency in power coupled with presence in structurally sound northern region provides strong prospects for MCL. Commissioning from new 0.5 mt Aligarh unit will enable it to dispatch more to VAT exempted Rajasthan market. Improving profitability owing to better efficiency of new unit and efforts to reduce lead distance and rationalize P&F costs will aid growth. Currently the stock is trading at FY18E 6.9x PE, 4.1x EV/EBIDTA and EV/tonne of INR 2300 its FY18E capacity. We continue to retain our BUY recommendation on the stock with a target of INR 453 based on FY18 EV/tonne of INR 3600.