Mangalam Cement Ltd.
Mangalam Cement Ltd. (MCL) has performed strongly, wiping out its
accumulated losses in FY06 (Year Ended September). The strong demand for cement in the domestic market coupled with firm cement prices is expected to bring rich rewards for the company in the next 18 months. MCL is putting up a 17.5MW captive power plant (CPP), which is expected to go on steam by June 2007. CPP is expected to save Rs160mn per annum on the power front for the company. MCL is also adding 0.5mn ton of new cement capacity to take its total production capacity to 2mn ton by September 2007. We estimate MCL’s earnings for FY08 (Year Ended March) to be at Rs37.1. We find the valuations compelling and recommend a BUY
on the stock.
Cement prices have remained firm in the traditionally weak monsoon period also. Prices have started moving up from October. Average cement prices went up by Rs3 per bag in October and by another Rs5 in November. Going forward, we expect one more price revision during the peak demand period of January-March. Cement realisations for MCL has gone up by 7.2% qoq to Rs3253 for the quarter ended September 2006. We estimate FY07 (6 month period) realization to increase to Rs3335 per ton and further rise in FY08 (12 month period) to Rs3374 per ton.
Cement demand in the Northern region has grown at 11% in April-August 2006, the highest in India. The capacity addition has not matched this rapid pace in consumption growth. Major cement players have announced capacity additions in the last six months only. It takes normally 18-21 months to put up a cement plant. With huge orders piled up with the equipment suppliers we feel there is a possibility of projects getting delayed a bit. As a result, the current demand-supply mismatch will continue till the end of FY08. This is expected to keep cement prices at higher levels till FY08.