Madras Cements Cluster: Cannonball Recommendation: Buy Price target: Rs4,000 Current market price: Rs2,712
Price target revised to Rs4,000
Result highlights
Madras Cements' Q4FY2008 revenues grew by 21.8% year on year (yoy) to Rs530 crore. The operating profit margin (OPM) improved by 40 basis points yoy to 31%. The improvement in the OPM was mainly on account of a year-on-year (y-o-y) increase in realisations. The operating profit rose by 23.4% to Rs164.4 crore.
During the quarter, the realisation per tonne increased by 15.8% to Rs3,468 per tonne, the cost per tonne grew by 17.2% to Rs2,371.2 per tonne, while the earnings before interest, depreciation, tax, and amortisation (EBIDTA) per tonne rose by 12.8% to Rs1,097 per tonne.
The interest expenses increased sharply by 361.9% to Rs27.5 crore due to an increase in the debt by Rs958.3 crore. Thus, the net profit grew by only 7.4% to Rs76.2 crore.
On a quarter-on-quarter (q-o-q) basis, the revenues increased by 3.4% to Rs530 crore. The OPM declined by a massive 620 basis points to 31% due to a q-o-q decline in cement realisations by 1.7%, an increase in the freight by 17.5% and a rise in the power cost by 10.6%. The net profit declined sequentially by 31.1% to Rs76.2 crore.
For FY2008, the net sales stood at Rs2,011.9 crore, up 27.8% yoy. The OPM improved by 210 basis points yoy to 37.4%. The profit after tax (PAT) stood at Rs408.3 crore, up 32.6% yoy.
The company's board has recommended issue of bonus shares in the ratio of 1:1 and subdivision of shares of Rs10 each to 10 shares of Re1 each. The board has also recommended a dividend of Rs20 per share. The total dividend for the year 2007-08 is Rs40 per share. Apart from this, the company has also completed the buy back of 179,481 equity shares at an average cost of Rs3,592 per share.
Going forward, the top line growth of the company will be driven primarily by the volume growth on the back of capacity additions being carried out by the company. However, we have revised our profit estimates for FY2009 downwards to factor in the higher input cost, and now expect the company's net profit to grow at 5.3% yoy. We have also introduced FY2010 earning estimates in this note and expect the company's net profit to grow 16.6% yoy in FY2010. At the current market price of Rs2,712, the share trades at 7.5x and 6.4x its FY2009 and FY2010 earnings respectively and an enterprise value (EV)/EBIDTA of 5.7x and 4x for FY2009 and FY2010 respectively. We maintain our Buy recommendation on the stock with a revised price target of Rs4,000.
SECTOR UPDATE
Automobiles
Weakness continues Automobile sales were mixed for the month of June 2008, with better dispatches in two-wheeler and commercial vehicle segments as compared with that in the passenger car segment. We continue to maintain our cautious stand on the sector, as rising interest rates and control on credit continues to impact the demand in the sector. Manufacturers are offering aggressive discounts across products to push sales.
