Initiating coverage | Cement
September 25, 2014
Mangalam Cement
BUY
CMP
`246
New capacity addition to drive volume growth
Target Price
`337
Capacity expansion to drive volume growth: Mangalam Cement (MCL), a BK Birla
Investment Period
12 Months
group company having its plant in Rajasthan, has expanded its cement capacity
by 1.25mtpa (increase of 63%) to 3.25mtpa (as of end-FY2014). We expect MCL
Stock Info
to report a healthy 21.8% volume CAGR over FY2014-16E on the back of improved
Sector
Cement
outlook for cement demand (also MCL’s production in FY2014 was lower due to
Market Cap (` cr)
657
plant shut down for a few months for up-gradation, leading to lower base).
Net Debt (` cr)
355
Beta
1.1
OPM to improve due to multiple levers: With MCL’s grinding capacity now
52 Week High / Low
268/95
increased to 1.4x of clinker capacity post expansion (vs 1.2x earlier), it expects to
Avg. Daily Volume
86,833
increase the fly ash component in cement production from current 16% to
30-32% during FY2015E, closer to industry levels, which is expected to aid in
Face Value (`)
10
OPM expansion. Also, in FY2014 MCL had undertaken plant shutdown to
BSE Sensex
26,745
upgrade its Kiln which will help in reducing power and fuel consumption. Also,
Nifty
8,002
the new 1.25mtpa capacity, which is expected to contribute significantly to overall
Reuters Code
MGLC.BO
production volume, is also expected to be more energy efficient. Thus there would
Bloomberg Code
MGC IN
be a further reduction in the cost of cement production for the company. The
realizations are also expected to improve due to strong demand recovery in the
Shareholding Pattern (%)
cement sector. We expect realization to improve by 7% CAGR over FY2014-16E.
Promoters
27.4
Overall, we expect EBITDA/tonne to improve from `310/tonne in FY2014 to
MF / Banks / Indian Fls
1.1
`680/tonne in FY2016.
FII / NRIs / OCBs
1.1
Valuation: At the current market price of `246, the stock is trading at trailing
Indian Public / Others
70.3
EV/tonne of $49 (on its 3.25mtpa installed capacity), which is at a large discount
to its midcap peers (The peers like India cement, JK cement, JK lakshmi and
Ramco Cement are trading at EV/tonne of $70, $75, $120 (including expanded
Abs. (%)
3m
1yr
3yr
capacity $104) and $121 respectively). The stock is trading at 12.6x and 7.9x its
Sensex
7.0
34.5
66.0
FY2015E and FY2016E EPS and 7.5x and 4.8x its FY2015E and FY2016E
Mangalam Cem
18.2
149.4
139.4
EV/EBITDA, respectively. We initiate coverage on Mangalam Cement with a Buy
recommendation and target price of `337 based on EV/tonne of $60 and
implying 6.5x FY2016E EV/EBIDTA. The EV/EBITDA target multiple is at a 10%
discount to the company’s other midcap peers in the cement space.
Key Financials
Y/E March (` cr)
FY13
FY14
FY15E
FY16E
Net Sales
706
697
940
1,156
% chg
11.9
(1.2)
34.8
23.1
Net Profit
77
30
52
84
% chg
38.2
(61.7)
76.2
60.4
EBITDA (%)
18.5
8.0
13.5
15.7
EPS (`)
29
11
20
31
P/E (x)
8.5
22.2
12.6
7.9
P/BV (x)
1.3
1.3
1.2
1.1
RoE (%)
16.7
5.9
9.9
14.6
RoCE (%)
15.4
3.0
8.5
12.7
Shrenik Gujrathi
EV/Sales (x)
0.9
1.1
1.0
0.8
022 39357800 Ext:6872
EV/EBITDA (x)
4.6
13.6
7.5
4.8
[email protected]
Source: Company, Angel Research; Note: CMP as of September 24, 2014
Please refer to important disclosures at the end of this report
1
Mangalam Cement | Initiating coverage
Investment Arguments
Capacity expansion to drive volume growth
MCL has expanded its cement capacity by 1.25mtpa (increase of 63%) to
3.25mtpa (as of end-FY2014). It has also expanded its clinker capacity by 0.5mtpa
to 2.3mtpa. The company has incurred a capex of ~`500cr for this expansion.
MCL started commercial production at the new capacity in 1QFY2015, which we
believe would drive volume growth during FY2015-16. The company operated at
92/90% capacity utilization level during FY2013/14 inspite of a weak economic
environment prevalent during the last couple years. With a pick-up in infrastructure
and construction activity in the country, we expect MCL to easily soak up the new
capacity. Due to the addition of the new capacity, we expect utilization to decline to
71% during FY2015 but thereafter the same is expected to increase to 82% in
FY2016. We expect MCL to report a healthy 21.8% volume CAGR during FY2014-
16 on the back of improved outlook for cement demand (also MCL’s production in
FY2014 was lower due to plant shut down for a few months for up-gradation,
leading to lower base).
Exhibit 1: Cement Capacity and utilization levels
Exhibit 2: Volume Growth Trend
3.0
35.0
3.5
3.25
3.25
100.0
28.9
2.7
92.2
89.9
30.0
90.0
3
81.9
81.6
2.5
2.3
75.7
25.0
71.3
80.0
2.5
82.0
70.0
2.0
1.8
1.8
20.0
2
2
2
2
2
1.6
15.0
60.0
1.5
13.0
15.0
2
1.5
50.0
7.8
10.0
1.5
40.0
1.0
5.0
1
30.0
(2.5)
-
20.0
0.5
(7.5)
0.5
(5.0)
10.0
0.0
(10.0)
0
0.0
FY11
FY12
FY13
FY14
FY15E
FY16E
FY10
FY11
FY12
FY13
FY14
FY15E FY16E
Volume (mn tonnes)
yoy (%) (RHS)
Capacity
Utilization
Source: Company, Angel Research
Source: Company, Angel Research
OPM to improve due to multiple levers
With MCL’s grinding capacity now increased to 1.4x of clinker capacity post
expansion (vs 1.2x earlier), it expects to increase the fly ash component in cement
production from current 16% to 30-32% during FY2015, closer to industry levels,
which is expected to aid in OPM expansion. The company plans to increase the
blended cement production to 75% by FY2015 and increase it to upto 90% in the
following years. Also, in FY2014, MCL had undertaken plant shutdown to upgrade
its Kiln which will help in reducing power and fuel consumption. Also, the new
1.25mtpa capacity is expected to contribute significantly to overall production
volume and is also expected to be more energy efficient. Thus there would be
further reduction in the cost of cement production for the company. The
realizations are also expected to improve due to strong demand recovery in the
cement sector. We expect realization to improve by 7% (CAGR) during FY2014-16.
Overall, we expect EBITDA/tonne to improve from `310/tonne in FY2014 to
`680/tonne in FY2016.
September 25, 2014
2
Mangalam Cement | Initiating coverage
Exhibit 3: Expect step improvement at EBITDA levels
800
20.0
18.5
700
16.5
18.0
15.7
16.0
600
13.5
14.0
12.0
500
12.0
400
10.0
8.0
709
680
8.0
300
638
547
6.0
200
389
310
4.0
100
2.0
0
0.0
FY11
FY12
FY13
FY14
FY15E
FY16E
EBITDA/tonne
EBITDA margin (%) (RHS)
Source: Company, Angel Research
Presence in favorable regions of North and Central India
MCL’s sales mix is spread across north and central markets of India. These two
regions account for an equal share (50% each) of its total cement sales mix. We
expect economic activity to pick up, which would lead to a boost in infrastructure
and housing demand going forward. During FY2014-16, we expect a favourable
demand supply scenario in north and central regions due to better demand and a
decline in capacity addition, which will lead to increase in utilization levels and
provide pricing power to north based cement players including MCL. Presence in
favourable markets ensures potential for significant growth.
September 25, 2014
3
Mangalam Cement | Initiating coverage
Financial outlook
MCL posted a weak top-line CAGR of 3.2% over FY2010-14, primarily due to
weak economic environment during the period. We expect it to report a healthy
28.8% revenue CAGR over FY2014-16 on the back of strong volume growth due
to new capacity addition and better realization due to an improved outlook for
cement demand.
In FY2014, the company’s EBITDA declined sharply by 57% yoy to `56cr while the
EBITDA margin declined to 8% vs 18.5% in FY2013 due to plant shutdown to
upgrade its Kiln. Going forward, we expect the EBITDA margin to improve due to
various cost efficiency measures undertaken by the company. The EBITDA margin
is expected to improve from 8% in FY2014 to 15.7% by FY2016 while the PAT
margin is expected to improve from 4.2% in FY2014 to 7.2% in FY2016. Overall,
we expect EBITDA and PAT to grow at a CAGR of 80% and 68% over FY2014-16.
With better profitability, we expect MCL’s RoE to improve from current levels of
5.9% to 14.6% by FY2016.
Exhibit 4: Revenue Growth Trend
Exhibit 5: Profitability Trend
1,400
40.0
(` cr)
(%)
34.8
200
20.0
28.3
1,156
1,200
30.0
16.5
18.5
180
18.0
940
160
15.7
16.0
1,000
20.0
11.9
13.5
23.1
140
14.0
12.0
800
697
10.0
120
11.0
12.0
631
706
8.9
100
8.0
10.0
600
492
-
7.8
7.2
(1.2)
80
8.0
5.5
400
(10.0)
60
4.2
6.0
40
4.0
200
(20.0)
(19.9)
20
2.0
-
(30.0)
0
0.0
FY11
FY12
FY13
FY14
FY15E
FY16E
FY11
FY12
FY13
FY14
FY15E
FY16E
Revenue (` cr)
yoy chg (%) (RHS)
EBITDA
PAT
EBITDAM
PATM
Source: Company, Angel Research
Source: Company, Angel Research
September 25, 2014
4
Mangalam Cement | Initiating coverage
Outlook and Valuation
MCL’s recent capacity addition would drive volume growth along with possible
uptick in realization while better cost structure will improve the profitability going
forward.
At the current market price of `246, the stock is trading at trailing EV/tonne of $49
(on its 3.25mtpa installed capacity), which is at a large discount to its midcap
peers (The peers like India cement, JK cement, JK lakshmi and Ramco Cement are
trading at EV/tonne of $70, $75, $120 (including expanded capacity $104) and
$121 respectively). The stock is trading at 12.6x and 7.9x its FY2015E and
FY2016E EPS and
7.5x and
4.8x its FY2015E and FY2016E EV/EBITDA
respectively. We initiate coverage on Mangalam Cement with a Buy
recommendation and target price of `337 based on EV/tonne of $60 and
implying 6.5x FY2016E EV/EBIDTA. The EV/EBITDA target multiple is at a 10%
discount to the company’s other midcap peers in the cement space.
Exhibit 6: Valuation of midcap cement companies as on FY14
Capacity
EV/Tonne
P/B
OPM
Company Name
EV/EBITDA
(mn tn)
($)
value
(%)
Jk Lakshmi*
5.3
120
3.1
14.4
14.7
JK Cement
8.1
75
2.2
10.9
14.4
India Cement
15.6
70
1.1
7.0
12.1
Ramco Cement
12.5
121
3.1
18.9
14.1
Mangalam Cement
3.3
49
1.3
13.9
8.0
Note:*After expanded capacity JK Lakshmi EV/tonne come to $104
September 25, 2014
5
Mangalam Cement | Initiating coverage
Company Background
Mangalam Cement was incorporated in 1978 and is a part of the BK Birla group.
The company is engaged in the business of cement manufacturing and has an
installed cement capacity of 3.25mtpa and clinker capacity of 2.3mtpa in Morak,
Rajasthan. MCL also has a 35MW captive thermal power plant and 13.65MW
wind energy capacity, all located in Rajasthan. The company sells three types of
cement products OPC grade 43, OPC grade 53 and PPC under the brand name
Birla Uttam cement. The company has a network of 1,179 dealers and 3,415
retail touch points spread across Rajasthan, Delhi, Haryana, Uttar Pradesh, and
Madhya Pradesh.
Exhibit 7: Mangalam Cement Sales Mix
7
8
35
10
40
Rajasthan
Uttar Pradesh
Madhya Pradesh
Delhi
Haryana
Source: Company, Angel Research
September 25, 2014
6
Mangalam Cement | Initiating coverage
Profit & Loss Statement
Y/E March (` cr)
FY11
FY12
FY13
FY14
FY15E
FY16E
Net Sales
492
631
706
697
940
1156
% Chg
(19.9)
28.3
11.9
(1.2)
34.8
23.1
Total expenditure
433
527
575
642
813
975
Net Consumption of Materials
78
104
76
144
141
173
Purchases of Traded Goods
0
0
0
15
0
0
Power and Fuel
153
165
201
172
253
290
Employee benefit expenses
30
32
38
43
56
69
Transport charges
122
154
179
187
254
312
EBITDA
59
104
131
56
127
181
% Chg
(69.3)
76.9
25.6
(57.4)
127.4
42.9
EBIDTA %
12.0%
16.5%
18.5%
8.0%
13.5%
15.7%
Depreciation
28
32
25
28
39
46
EBIT
31
72
106
28
87
135
% Chg
(81.1)
130.0
46.7
(73.5)
211.7
54.9
Interest Charges
2
3
5
9
13
17
Other Income
12
6
7
5
5
9
(% of Net Sales)
2.5
1.0
1.0
0.7
0.5
0.8
PBT
41
75
108
24
79
127
Tax
3
19
30
(6)
27
43
% of PBT
7.6
25.3
28.2
(23.7)
34.0
34.0
PAT before Exceptional item
41
75
108
24
79
127
Exceptional item
0
0
0
0
0
0
PAT
38
56
77
30
52
84
% Chg
(67.8)
46.4
38.2
(61.7)
76.2
60.4
PAT %
7.8
8.9
11.0
4.2
5.5
7.2
Basic EPS
14
21
29
11
20
31
Diluted EPS
14
21
29
11
20
31
% Chg
(68.0)
46.4
38.2
(61.7)
76.2
60.4
September 25, 2014
7
Mangalam Cement | Initiating coverage
Balance Sheet
Y/E March (` cr)
FY11
FY12
FY13
FY14
FY15E
FY16E
Sources of Funds
Equity Capital
27
27
27
27
27
27
Reserves Total
368
406
466
480
516
573
Networth
395
432
492
507
543
600
Total Debt
14
43
289
436
436
436
Deferred Tax Liability
59
62
58
61
61
61
Total Liabilities
467
537
839
1,005
1,040
1,097
Application of Funds
Gross Block
629
659
681
872
1127
1147
Accumulated Depreciation
278
307
331
357
396
442
Net Block
351
352
349
515
731
705
Capital WIP
9
19
214
255
20
20
Investments
1
1
36
36
36
36
Inventories
66
58
137
116
138
155
Sundry Debtors
12
29
30
23
31
38
Cash and Bank Balance
26
44
92
46
91
166
Loans, Adv. and Deposits
176
218
83
114
118
125
Other Current Asset
279
352
370
337
416
524
Current Liabilities
173
188
129
138
162
187
Net Current Assets
106
164
219
168
223
304
Miscellaneous Expenditure
0
0
0
0
0
0
Total Assets
467
537
839
1,005
1,040
1,097
September 25, 2014
8
Mangalam Cement | Initiating coverage
Cash Flow Statement
Y/E March (` cr)
FY11
FY12
FY13
FY14
FY15E
FY16E
Profit before tax
41
75
108
24
79
127
Depreciation
28
32
25
28
39
46
Change in Working Capital
(43)
(40)
(6)
5
(10)
(7)
Less: Other income
12
6
7
5
5
9
Direct taxes paid
3
19
30
(6)
27
43
Cash Flow from Operations
10
42
89
58
77
114
(Inc)/ Dec in Fixed Assets
(68)
(41)
(216)
(232)
(20)
(20)
(Inc)/ Dec in Investments
18
-
(34)
-
-
-
Other income
12
6
7
5
5
9
Cash Flow from Investing
(37)
(35)
(244)
(227)
(15)
(11)
Issue/(Buy Back) of Equity
-
-
-
-
-
-
Inc./(Dec.) in loans
3
29
211
146
-
-
Dividend Paid (Incl. Tax)
19
19
19
9
16
26
Others
2
(0)
(11)
13
1
2
Cash Flow from Financing
(17)
11
203
124
(17)
(28)
Inc./(Dec.) in Cash
(44)
18
49
(46)
45
75
Opening Cash balances
70
26
44
92
46
91
Closing Cash balances
26
44
92
46
91
166
September 25, 2014
9
Mangalam Cement | Initiating coverage
Key Ratios
Y/E March
FY11
FY12
FY13
FY14
FY15E
FY16E
Valuation Ratio (x)
P/E (on FDEPS)
17.2
11.7
8.5
22.2
12.6
7.9
P/CEPS
10.0
7.5
6.4
11.5
7.2
5.1
Dividend yield (%)
2.4
2.4
2.4
1.2
2.1
3.4
EV/Sales
1.3
1.0
0.9
1.1
1.0
0.8
EV/EBITDA
10.8
6.1
4.6
13.6
7.5
4.8
EV / Total Assets
1.4
1.2
0.7
0.8
0.9
0.8
Per Share Data (`)
EPS (Basic)
14.3
21.0
29.0
11.1
19.5
31.3
EPS (fully diluted)
14.3
21.0
29.0
11.1
19.5
31.3
Cash EPS
24.6
33.0
38.4
21.5
34.3
48.5
DPS
6.0
6.0
6.0
3.0
5.3
8.5
Operating ROE
7.9
19.9
16.3
5.1
13.9
20.6
Returns (%)
RoCE (Pre-tax)
6.9
14.3
15.4
3.0
8.5
12.7
Angel RoIC (Pre-tax)
8.6
15.9
21.8
4.8
11.2
15.3
RoE
9.8
13.5
16.7
5.9
9.9
14.6
Turnover ratios (x)
Asset Turnover (Gross Block) (x)
0.9
1.0
1.1
0.9
0.9
1.0
Inventory / Sales (days)
49
36
50
66
49
46
Receivables (days)
8
12
15
14
10
11
Payables (days)
156
125
101
76
67
65
September 25, 2014
10
Mangalam Cement | Initiating coverage
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
Mangalam Cement
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
Reduce (-5% to -15%)
Sell (< -15%)
September 25, 2014
11
Mangalam Cement | Initiating coverage
6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800
Research Team
Fundamental:
Sarabjit Kour Nangra
VP-Research, Pharmaceutical
[email protected]
Vaibhav Agrawal
VP-Research, Banking
[email protected]
Amarjeet Maurya
Analyst
[email protected]
Bharat Gianani
Analyst
[email protected]
Shrenik Gujrathi
Analyst
[email protected]
Umesh Matkar
Analyst
[email protected]
Twinkle Gosar
Analyst
[email protected]
Tejas Vahalia
Research Editor
[email protected]
Technicals and Derivatives:
Siddarth Bhamre
Head - Technical & Derivatives
[email protected]
Sameet Chavan
Technical Analyst
[email protected]
Nagesh Arekar
Executive
[email protected]
Sneha Seth
Associate (Derivatives)
[email protected]
Institutional Sales Team:
Mayuresh Joshi
VP - Institutional Sales
[email protected]
Meenakshi Chavan
Dealer
[email protected]
Gaurang Tisani
Assistant Manager
[email protected]
Production Team:
Dilip Patel
Production Incharge
[email protected]
CSO & Registered Office: G-1, Ackruti Trade Centre, Road No. 7, MIDC, Andheri (E), Mumbai - 93. Tel: (022) 3083 7700. Angel Broking Pvt. Ltd: BSE Cash: INB010996539 / BSE F&O: INF010996539, CDSL Regn. No.: IN - DP - CDSL - 234 - 2004, PMS Regn. Code: PM/INP000001546, NSE Cash: INB231279838 /
NSE F&O: INF231279838 / NSE Currency: INE231279838, MCX Stock Exchange Ltd: INE261279838 / Member ID: 10500. Angel Commodities Broking (P) Ltd.: MCX Member ID: 12685 / FMC Regn. No.: MCX / TCM / CORP / 0037 NCDEX: Member ID 00220 / FMC Regn. No.: NCDEX / TCM / CORP / 0302.
September 25, 2014
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