Madras Cement: Result Review For June Quarter 2012

Madras Cement, a south-based major cement producing company, has announced its results for the June 2012 quarter. The company has reported strong growth in topline and bottomline on a YoY basis. The net sales of the company grew by 30 per cent YoY to Rs 995 crore. The net profit too has grown strongly by 25 per cent YoY to Rs 123 crore. This was due to a low base effect and a stable demand scenario in the region. The strong performance was also on the account of better sales volumes and higher realisation as compared to the same period last year. The sales volume for the quarter has grown by 21 per cent YoY to 2.158 million tonnes while the realisation has improved by 7 per cent YoY to Rs 4,392 per tonne.

Further Despite a significant increase in the costs of raw material (up by 50 per cent YoY), power & fuel (up by 30 per cent YoY) and freight (up by 64 per cent YoY), the EBITDA margin of the company declined by mere 100 bps on a YoY basis to 31 per cent. The lower decline in the margins was on the back of firm cement prices and higher sales volume during the quarter.

Moreover, sequentially too the company has shown strong upturn. On a sequential basis the net sales of the company have gone up by 6 per cent while net profit has gone up by 24 per cent. This was also on the back of strong growth in sales volume and Firm cement prices which stood at Rs 290-300 per 50 Kg Bag.

As for the penalty of Rs 258.63 crore levied by the Competition Commission of India (CCI) for cartelisation, the company has stated in a press release that it plans to appeal against the order through the Competition Appellate Tribunal. The company has not provided for the penalty in its accounts.

In conclusion we believe despite all the headwinds the company has performed well in the June quarter which cyclically also remains the decent quarter as construction and infrastructure activities are at their peak levels. Delayed monsoon helped the company to post higher volumes.  However, with the revival in monsoon we may see a cyclical slowdown in demand in the coming quarter due to slowdown in the construction activity. And any slowdown in demand will subsequently led to decline in the cement prices. This coupled with high cost of Raw materials and freight charges which will lead to higher margin erosion. Therefore we expect September quarter to remain muted.