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Madras Cem: Lower costs aid margins - Views on News from Equitymaster

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Madras Cem: Lower costs aid margins
Feb 16, 2011

Madras Cement has announced its 3QFY11 results. The company has reported a flat YoY growth in net sales and a 172% YoY surge in net profits. Here is our analysis of the results:

Performance summary
  • Revenue remains flat during quarter ended December 2010 owing to lower cement realisations.
  • Operating profits rise by 37.7% YoY as operating costs decline by 8.6% YoY.
  • Net profits surge by 171.6% due to higher operating margins, lower interest expenses and lower effective tax rate.


Financial performance snapshot
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 5,795 5,792 0.0% 21,351 19,185 -10.1%
Expenditure 4,719 4,311 -8.6% 14,020 14,710 4.9%
Operating profit (EBITDA) 1,076 1,481 37.7% 7,331 4,475 -39.0%
EBITDA margin 18.6% 25.6%   34.3% 23.3%  
Other income 57.4 62.4 8.7% 140 217.3 55.2%
Interest 375 350 -6.7% 1125 1050 -6.7%
Depreciation 507.7 542.2 6.8% 1432.9 1,628 13.6%
Profit before tax/(loss) 250 651 160.2% 4,913 2,014 -59.0%
Tax 90.1 216.2 140.0% 1,670 542.1 -67.5%
Profit after tax/(loss) 160 435 171.6% 3,243 1,472 -54.6%
Net profit margin 2.8% 7.5%   15.2% 7.7%  
No of shares (m)       238 238.0  
Diluted EPS (Rs)*         7.4  
P/E (times)*         12.8  
*trailing twelve month earnings

What has driven performance in 3QFY11?
  • Madras Cement reported a flat topline during the quarter. During 9mFY11, net sales dropped by 10.1%. The company has not announced sales volumes. However, we believe that lower realisations due to overcapacity are the main reasons for the subdued topline.

  • However, operating profits grew 37.7% YoY during the quarter. There was an 8.6% YoY decline in operating expenses on the back of lower raw material and freight expenses (as a percentage of net sales). As a result, operating margins improved from 18.6% in 3QFY10 to 25.6% in 3QFY11.

  • At the bottomline level, net profits for the quarter rose by a whopping 171.6% YoY on account of higher operating margins, lower interest charges and lower effective incidence of tax. Net profit margins rose from 2.8% in 3QFY10 to 7.5% in 3QFY11.

What to expect?
At the current price of Rs 95, the stock is trading at 12.8 times its trailing twelve month earnings. We shall soon update our research report on the company.

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