Madras Cements Ltd

Madras Cements Ltd is the flagship company of the Ramco Group, a well-known business group of South India. It is headquartered at Chennai. The main product of the company is Portland cement. The company is the fifth largest cement producer in the country.

The company has registered decent numbers for the quarter ending March 2012. The company has reported a rise of 25.14% in its net profit at Rs 123.01 crore for the quarter, as compared to Rs 98.30 crore for the same quarter in the previous year. Total income from operations of the company has increased by 29.56% to Rs 995.27 crore for Q1FY13 compared to Rs.768.21 crore for the quarter ended June 30, 2011. The company posted a sharp growth of 21% in volumes depicting increased cement demand in its key markets i.e. Tamil Nadu, Karnataka and Kerala. Operating profit zoomed about 26% at Rs.312.70 crore as compared to Rs.248.38 crore clocked in the like quarter last year. Realizations too has improved about 7% in the quarter. EPS stood higher at Rs.5.17 as against Rs.4.13 in Q1FY12.

The company has commissioned its 2 mtpa cement grinding capacity at Ariyalur which lead to 21.78% and 14% (y-o-y) rise in depreciation and power & fuel cost respectively.

The revenue of the cement division stood at Rs.948.33 crore; up by 29.54% on a y-o-y basis. The revenue from its power(windmills) division rose by 27.65% at Rs.40.95 crore as compared to Rs.32.08 crore in year ago quarter.

Valuation

With strong presence in South India, growing volumes and reducing costs and higher realizations; MCL growth prospects looks attractive. We believe Madras Cement Ltd. is trading at an attractive valuation at 10.62x and 9.37x of FY13EPS of Rs.17.55 and FY14EPS of Rs.19.89. We initiate a 'BUY' on the stock with a target price of Rs.240 (appreciation of about 29%) with the medium to long term investment horizon.