Price target: Rs4,800
Current market price: Rs4,474
Price target revised to Rs4,800
- Madras Cements’ topline grew by 23% year on year (yoy) to Rs500.12 crore. The topline rose on the back of a healthy 29% year-on-year (y-o-y) growth in realisations, which compensated for 5% y-o-y decline in volumes.
- Variable costs per tonne jumped by 22.3% yoy on the back of a 27% y-o-y rise in power costs and 38% y-o-y rise in freight costs. Employee costs shot up by 38% yoy. Overall costs increased by 15% yoy translating into a per tonne rise of 21% yoy.
- Higher realisations led the operating profits grow by 36% yoy to Rs214.5 crore and the operating profit margin (OPM) expand by 400 basis points to 42.9%. The earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne zoomed to Rs1,548, the highest in the industry and the highest in the company’s history as well.
- Interest cost and depreciation provision on a sequential basis remained more or less constant at Rs8.1 crore and Rs25.7 crore respectively.
- Other income doubled to Rs2.8 crore as the company deployed the surplus cash. Consequently, profit after tax (PAT) rose by 34% yoy to Rs120 crore.
- The company is expanding its capacity by 4 million metric tonne (MMT) to 10MMT by FY2009, as already mentioned in previous updates. The clinker unit at Jayanthipuram was commissioned in October 2007 as per schedule, whereas the 1MMT grinding unit at West Bengal has been delayed and will come up only in FY2009. The other 2MMT capacity expansion at Ariyalur is expected to come up at the end of Q2FY2009.
- Taking cognisance of the realisation growth in the current quarter, we are upgrading our FY2008 earnings per share (EPS) estimate by 5.8% to Rs390 and FY2009 EPS estimate by 12.1% to Rs497.
- 4MMT capacity expansion will drive the company’s volume growth going ahead. Healthy realisations in the South coupled with the company’s efforts on cost control will aid it in maintaining its EBITDA at an above-industry average, which in turn will drive the profitability. The company will also be able to avail tax benefits for setting up wind mills. The robust cash flow position of the company will make it well placed to withstand the downturn in the cement cycle. At the current market price, the company is trading at 9.1x its FY2009 EPS and 5.4x its enterprise value (EV)/EBITDA. With the rise in benchmark valuations, we are upgrading the price target to Rs4,800 per share.
Cluster: Ugly Duckling
Price target: Under review
Current market price: Rs51
- Ashok Leyland's total vehicle sales during November 2007 declined by 16.2% to 5,800 units as against 6,923 units in the same month a year ago. Sales in domestic market declined by 16.4%, whereas exports sales were also down by 13.7% for the month. Total sales declined by 15% month on month taking the year-till-date sales volume down by 3%.
- Passenger or bus sales were flat year on year (yoy) at 1,465 vehicles. Orders from various State Transport Corporations, which drove the sales growth of this segment in the first half of FY2008 have slowed down in the second half.
- Truck sales declined by 21% to 4,283 vehicles. Domestic sales declined by 20% yoy to 4,226 vehicles, while exports declined by 64% to 57 vehicles.
- Truck sales were affected due to constrains on the availability of driver cabins and the price increase of 2-2.5% undertaken in October 2007. A new 49 tonne vehicle has been launched in the high growth tractor trailer segment with 'H' series engine.
- The management has revised its guidance downwards for FY2008E to 91,000 vehicles from 100,000 vehicles. We estimate the volumes for FY2008 to be flat over FY2007 at 83,199. We also estimate a 14.4% growth for FY2009E to 95,138 vehicles.
- The outlook for the commercial vehicle (CV) industry still appears to be weak. However, the company is trying to diversify itself by entering into joint ventures with Siemens VDO for infotronics and is tying-up with Nissan for the Light commercial vehicles. We maintain Hold on the stock.