CMP* (Rs) 206 Market Cap. (Rs bn) 5.5 Free Float (%) 72 Shares O/S (mn) 26.7 Mangalam Cement Weak volumes marred performance Mangalam Cement (MCL) delivered a weak performance in 2Q but was marginally above our expectation as operating profit (adjusted for DMF provisioning of Rs45mn and wage board revision of Rs38mn) came in at Rs84mn v/s expectation of Rs56mn. Weak sales volume (down ~14% yoy) and ~3% yoy decline in average realizations marred the operating performance. Given the current market feedback from our dealers check, we do not expect any encouraging scenario in demand in 3QFY16E. Nonetheless, we believe that performance from 4QFY16E is likely to improve due to: 1) likely improvement in pricing environment, 2) healthy volume growth along with pickup in utilizations from new units, 3) sales tax subsidy, 4) softened fuel costs owing to improving efficiency of plants, and 5) change in production mix (MCL has guided to take PPC production to ~70% from ~60%). Thus, we maintain our recommendation on the stock with a revised Target Price of Rs250. Dismal sales volume led to revenue de-growth MCL reported a top-line de-growth of ~16% yoy to ~Rs2bn, which is in-line with our estimate. A significant decline in sales volume (down by ~14% yoy to 0.55mnT) led to decline in revenue. MCL sold ~30,000 tonnes of cement from the leased unit in Ghaziabad during the quarter. MCL has produced 0.27mnT clinker during 2Q v/s 0.48mnT and 0.49mnT production recorded during 2QFY15 and 1QFY16, respectively. Operating performance remained subdued Operating performance remained subdued as operating profit (adj for DMF provisioning of Rs45mn and wage board revision of Rs38mn) came in at Rs84mn (down ~61% yoy). Dismal volume and low realizations impacted operating performance. Notably, low utilization also led to increase in operating cost/tonne (up ~2% yoy and ~3% qoq). Adjusted EBITDA/tonne came in at Rs161 as against Rs337 reported in 2QFY15. Outlook and Valuation We expect MCL s performance to improve from 4QFY16E on the back of expected pickup in demand and pricing scenario. However, we cut our EBITDA estimates by ~54%/~12% for FY16E/FY17E, respectively mainly to factor subdued volume, one time provisioning and dismal realizations. At the CMP, the stock is trading at EV/tonne of US$44/US$43 per tonne for FY16E/FY17E, which appears attractive. We reiterate our recommendation on the stock with a revised Target Price of Rs250 (implying EV/tonne at US$49 for FY17E).. Share price (%) 1 mth 3 mth 12 mth Absolute performance (7.8) (14.0) (31.4) Relative to Nifty (2.9 (9.3) (31.5) Shareholding Pattern (%) Jun 15 Sept 15 Promoter 27.5 27.6 FII 9.7 10.1 DII 4.3 4.3 Others 58.5 58.1 1 Year Stock Price Performance 400 350 300 250 200 150 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Note: * CMP as on November 09, 2015 Key Financials (Rs mn) FY14 FY15 FY16E FY17E Sales 6,973 9,218 9,185 11,529 EBITDA 557 904 475 1,638 Net Profit 296 179 (236) 643 EPS (Rs) 11.1 6.7 (8.8) 24.1 DPS (Rs) 3.0 2.0-2.0 PE (x) 18.6 30.7 (23.3) 8.6 P/B (x) 1.1 1.1 1.1 1.0 EV/EBITDA (x) 15.0 9.8 19.0 5.4 RoE (%) 5.9 3.5 (4.6) 12.2 Divi. Yield (%) 1.5 1.0-1.0 Source: Company, RSec Research Research Analyst : Binod Modi Contact : (022) 33201097 Email : binod.modi@relianceada.com 1
Risk to the view ff Government s failure to revive infrastructure activity Exhibit 1: Quarterly Performance (Rs mn) 2QFY16 2QFY15 % yoy 1QFY16 % qoq 1HFY16 1HFY15 % yoy Net Sales 1,999 2,378 (15.9) 2,114 (5.4) 4,113 4,659 (11.7) Cost of Materials Consumed 336 377 (10.7) 416 (19.1) 752 706 6.6 Purchase of stock in trade 122 187 (34.8) 141 (13.8) 263 338 (22.3) Change in WIP 291 (32) (75) 216 (37) % sales 37.5 22.4 22.8 29.9 21.6 Employee Benefit Expenses 169 133 27.6 169 0.1 338 260 29.9 % sales 8.5 5.6 8.0 8.2 5.6 Power & Fuel 358 652 (45.0) 629 (43.0) 987 1,201 (17.8) % sales 17.9 27.4 29.8 24.0 25.8 Packing, Distribution & Selling Exps. 565 671 (15.8) 664 (14.8) 1,229 1,282 (4.1) % sales 28.3 28.2 31.4 29.9 27.5 Other Expenditures 152 176 (13.5) 211 (27.8) 363 340 6.6 % sales 7.6 7.4 10.0 8.8 7.3 Total Expenditures 1,994 2,164 (7.8) 2,155 (7.4) 4,149 4,090 1.4 Operating costs/tonne (Rs) 3,467 3,393 2.2 3,367 3.0 3,484 3,280 6.2 EBITDA 5 215 (97.7) (41) (36) 569 (106.3) EBITDA/tone (Rs) 161 337 (52.2) (64) (351.4) (30) 456 (106.6) EBITDA margins 0.3 9.0 (1.9) (0.9) 12.2 Depreciation 89.6 89 1.0 87.0 2.9 177 159 10.9 Finance Costs 106.6 103 3.2 106.1 0.5 213 170 25.0 Other Income 9.5 31 (69.0) 26.6 (64.3) 36 61 (40.6) Exceptional Items 0.0 0 0.0 0 34 PBT (182) 53 (440.2) (207) (12.5) (389) 266 (246.4) Tax Expenses (26) 7 (479.3) (19) 38.0 (45) 90 % PBT 10.0 13.0 9.2 11.7 33.8 PAT (155) 46 (188) (344) 176 Net margins (7.8) 2.0 (8.9) (8.4) 3.8 EPS (Rs) (0.3) 1.7 (0.3) 6.59 Adjusted PAT (99) 46.5 (188.4) (288) 199 Source: Company, RSec Research Exhibit 2: Revised v/s Old estimates FY16E FY17E Old Revised % change Old Revised % change Volume (mnt) 2.7 2.5 (6.1) 3.0 2.9 (4.1) Sales (Rs mn) 10,129 9,185 (9.3) 12,375 11,529 (6.8) Realizations (Rs/tonne) 3,762 3,629 (3.5) 4,059 3,942 (2.9) EBIDTA (Rs mn) 1,021 475 (53.5) 1,869 1,638 (12.4) Margins (%) 10.1 5.2 (491 bps) 15.1 14.2 (90 bps) PAT (Rs mn) 191 (236) (223.4) 826 643 (22.2) EPS (Rs) 7.2 (8.8) (223.4) 30.9 24.1 (22.2) Source: RSec Research 2
Profit & Loss Statement Y/E March (Rs mn) FY14 FY15 FY16E FY17E Net Sales 6,973 9,218 9,185 11,529 % yoy growth (1.2) 32.2 (0.4) 25.5 Total Cost 6,416 8,314 8,710 9,891 Raw Materials Consumed 1,438 1,253 2,204 2,421 Employee Cost 426 577 579 715 Power & Fuel 1,715 2,584 2,492 2,830 Selling and Distribution Exp. 2,092 2,563 2,792 3,118 Other Expenditures 594 694 643 807 EBITDA 557 904 475 1,638 EBITDA Margin (%) 8.0 9.8 5.2 14.2 Depreciation and Amortization 277 336 385 442 Interest 87 383 434 439 Other Income 46 39 49 47 Exceptional Items 34 PBT 239 190 (295) 803 Tax (57) 11 (59) 161 % Tax (23.7) 5.6 20.0 20.0 Excep. Items - - - - Net Profit 296 179 (236) 643 YoY Growth (%) (61.7) (39.5) (231.8) (372.1) Net Profit Margin (%) 4.2 1.9 (2.6) 5.6 3
Balance Sheet Y/E March (Rs mn) FY14 FY15 FY16E FY17E Share Capital 267 267 267 267 Reserves & Surplus 4,803 4,909 4,723 5,302 Total Shareholder's funds 5,070 5,176 4,990 5,569 Secured Loans 3,680 4,032 4,232 4,132 Unsecured Loans - - - - Total Debt 3,680 4,032 4,232 4,132 Other Liabilities 797 803 1,007 1,295 TOTAL LIABILITIES 9,547 10,011 10,229 10,996 Gross Block 8,716 11,479 11,879 12,679 Less: Accumulated Depreciation 3,566 3,912 4,298 4,740 Net Block 5,150 7,567 7,581 7,939 CWIP 2,550 308 700 800 Investments 356 358 358 358 Inventories 1,159 1,585 1,409 1,706 Sundry Debtors 227 288 327 379 Cash & Bank 464 287 339 420 Loans & Advances 1,143 1,351 1,510 1,579 Total Current Assets 2,993 3,511 3,585 4,084 Current Liabilities 1,093 1,544 1,718 1,951 Provisions 172 158 166 188 Net Current Assets 1,727 1,809 1,701 1,944 Net Deferred Tax (610) (614) (614) (614) Other Assets 374 584 503 569 Total Assets 9,547 10,011 10,229 10,996 4
Cash Flow Statement Y/E March (Rs mn) FY14 FY15 FY16E FY17E Net Profit before Tax & Extraordinary Items 239 224 (295) 803 Depreciation 277 336 385 442 Interest (Net) 87 383 434 439 Dividend Received (46) (28) - - Others (18) (6) 51 - Operating profit before WC Changes 539 909 575 1,684 Working Capital Changes 193 (429) 160 (162) Direct Tax (102) 38 59 (161) Extraordinary Items - (34) - - Net Cash from Operating Activities 630 483 794 1,361 Purchase of Fixed Assets (2,306) (527) (792) (900) Purchase of Investments - (400) - - Others 51 425 - - Cash from Investment Activities (2,255) (502) (792) (900) Proceeds from LT Borrowings 1,433 287 200 (100) Dividend Paid (186) (94) - (64) Interest Paid (82) (377) (434) (439) Others - 26 284 223 Cash from Financing Activities 1,164 (158) 50 (380) Net Inc/(Dec) in Cash and Cash Equivalent (461) (177) 52 81 Opening Cash 923 464 287 339 Closing Cash 464 287 339 420 5
Key Ratios Y/E March FY14 FY15 FY16E FY17E Valuation Ratio (x) P/E 18.6 30.7 (23.3) 8.6 P/CEPS 9.6 10.7 36.8 5.1 P/BV 1.1 1.1 1.1 1.0 EV/EBITDA 15.0 9.8 19.0 5.4 EV/Sales 1.2 1.0 1.0 5.4 EV/tonne (US$) 40.2 42.7 43.4 42.6 Dividend Payout (%) 27.0 29.8-8.3 Dividend Yield (%) 1.5 1.0-1.0 Per Share Data (Rs) EPS (Basic) 11.1 6.7 (8.8) 24.1 EPS (Diluted) 11.1 6.7 (8.8) 24.1 CEPS 21.5 19.3 5.6 40.6 DPS 3.0 2.0-2.0 Book Value 190 194 187 209 EBITDA/tone (Rs) 298 369 191 567 Returns (%) RoCE 3.8 5.9 1.4 11.7 RoE 5.9 3.5 (4.6) 12.2 Turnover ratios (x) Asset Turnover (Gross block) 0.8 0.8 0.8 0.9 Inventory (days) 61 63 56 54 Receivables (days) 12 11 13 12 Payables (days) 62 68 72 72 6
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