Mangalam Cement Reports Strong Numbers In Dec Quarter 2011

Mangalam Cement has reported robust numbers for the December 2011 quarter. The net sales of the company have gone up by 56 per cent on a YoY basis to Rs 172 crore. It has reported a profit of Rs 26 crore against the loss of Rs 2.53 crore in the same period last year. This was mainly on account of the improvement in the realisations and the sales volume during the quarter. The sales volume of the company has increased by 18.78 per cent on a YoY basis to 0.430 million tonnes and the blended realisation has gone up by 31 per cent on a YoY basis to Rs 4,009 per tonne.

The company has a captive power plant of 35MW out of which it consumes 23-25 MW for internal consumption while the rest of the power is sold in the market. The extra power, if offered at fair prices, is sold to the exchange and if the offered prices are not fair then the company opts for lower capacity utilisation. 

The year 2011 for cement companies has remained quiet challenging. Lower demand, high input costs, high interest regime, tighter liquidity situation and slower economic growth have dampened the performance of this company in the last one year. However, now the scenario looks more conducive for these players since the RBI has cut the CRR by 50 bps and this is an indication that the interest rate cycle has peaked out and we may not see any other rate hike going forward.

In fact, by reducing the CRR the RBI has infused liquidity in the system to boost expenditure in the economy. With this the infrastructure and construction companies will get some relief on raising funds for their new and ongoing projects. Also, the cement business is cyclical in nature and generally the second half of the financial year remains better than the first half. We also expect a further improvement in the coming months.

A company spokesperson has said that there has been a pick-up in demand in the northern region from the retail construction sector and from the government side. The prices in January 2012 are currently at a firm level after the hike seen in the December quarter 2011. And going forward it will see a similar kind of growth in Q4FY12 due to a pick-up in demand and some hike in the price which will be in tune with the increasing demand. On the raw material side the company has stated that it will continue to use 100 per cent PET coke for the ongoing quarter. And depending on the output they will decide on the mix of PET coke with lower grade coal.

The scrip at the current market price of Rs 139.55 is trading at a PE of 6.4x with annualised EPS of Rs 21.73. In our opinion, it looks to be trading at a fair valuation. With the economic situation and the demand likely to turn for the better, the company should be able to report strong Q4FY12 results. Therefore we recommend buying the stock with an upside potential of 7-12 per cent from a medium-term perspective.