The Madras Cement Ltd ( MCL) is a pure south India-based cement player with 50% of its sales coming from Tamil Nadu, 25% Kerela, 13% Andhra Pradesh & 7% in Karnataka.
South India is plagued with massive overcapacity, coupled with negative demand growth. Hence, logically, cement prices should be the lowest there.
South India is plagued with massive overcapacity, coupled with negative demand growth. Hence, logically, cement prices should be the lowest there.
Demand - Supply - Price Dynamics..!
However, cement prices in the south are the highest in India. Hence, the argument that the south is the weakest region in the country, considering the demand-supply-price dynamics, falls flat.
Due to better operating efficiencies, Madras Cement has emerged as the most cost-efficient player in India with the best EBITDA. On a 5 year basis, MCL generated an average EBITDA per tonne of R1,190 compared to R881 for ACC, R1,000 for Ambuja Cement, R913 for Ultratech and R880 of India Cements.
Superior profitability has been due to a combination of manyl factors, such as higher realisation in the south, better operating efficiencies & capitive power plants.
MCL will have a strong free cash-flow generation in the years to come.
An installed capacity of 13 mtpa and dispatches less than 8 mtpa (66% capacity utilisation) leave sufficient room for growth without additional capex.
As much as 80% of capex for another 2 tpa plant has already been expended, thus, taking its total capacity to 15 mtpa tonne in FY14.
MCL will be generating FCF in excess of Rs. 500 Crore n in 2011-12 and Rs. 700 Crore in 2012- 13, with a potential to achieve a debt free status over the next 3 years.
At the current market price, MCL is quoting at an EV/Ebitda of 5.7x on FY13e earnings. Barring the crisis year of 2009, MCL is available at its lowest ever EV / EBITDA multiple over the last ten years.
Over the last 3 months, southern India has witnessed double-digit growth in dispatches, thus making pure south based players more appealing.
MOSL value MCL at EV / EBITDA multiple of 7x, thus resulting in an EV of Rs. 6,700 Crore, market capitalisation of Rs. 4,800 and a market price of Rs. 203 per share.
MOSL believe the current price offers a reasonable upside potential for investors.
Review by MOSL
Due to better operating efficiencies, Madras Cement has emerged as the most cost-efficient player in India with the best EBITDA. On a 5 year basis, MCL generated an average EBITDA per tonne of R1,190 compared to R881 for ACC, R1,000 for Ambuja Cement, R913 for Ultratech and R880 of India Cements.
Superior profitability has been due to a combination of manyl factors, such as higher realisation in the south, better operating efficiencies & capitive power plants.
MCL will have a strong free cash-flow generation in the years to come.
An installed capacity of 13 mtpa and dispatches less than 8 mtpa (66% capacity utilisation) leave sufficient room for growth without additional capex.
As much as 80% of capex for another 2 tpa plant has already been expended, thus, taking its total capacity to 15 mtpa tonne in FY14.
MCL will be generating FCF in excess of Rs. 500 Crore n in 2011-12 and Rs. 700 Crore in 2012- 13, with a potential to achieve a debt free status over the next 3 years.
At the current market price, MCL is quoting at an EV/Ebitda of 5.7x on FY13e earnings. Barring the crisis year of 2009, MCL is available at its lowest ever EV / EBITDA multiple over the last ten years.
Over the last 3 months, southern India has witnessed double-digit growth in dispatches, thus making pure south based players more appealing.
MOSL value MCL at EV / EBITDA multiple of 7x, thus resulting in an EV of Rs. 6,700 Crore, market capitalisation of Rs. 4,800 and a market price of Rs. 203 per share.
MOSL believe the current price offers a reasonable upside potential for investors.
Review by MOSL
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