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Madras Cem: A year of dismal performance - Views on News from Equitymaster
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Madras Cem: A year of dismal performance
May 26, 2011

Madras Cement has announced its financial results for the full year ended March 2011. The company has reported a decline of 7% YoY and 40% YoY in net sales and net profits. Here is our analysis of the results.

Performance summary
  • Revenues decline by 7% YoY during FY11.
  • Operating profits drop by 28% YoY as employee and energy costs rise as percentage of net sales.
  • Net profits decline by 40% YoY due to lower sales and higher operating expenses.

    Financial performance snapshot
    (Rs m) FY10 FY11 Change
    Net sales 28,009 26,049 -7.0%
    Expenditure 19,440 19,875 2.2%
    Operating profit (EBITDA) 8,569 6,174 -27.9%
    EBITDA margin 30.6% 23.7%  
    Other income 204 398 95.4%
    Interest 1509 1393 -7.7%
    Depreciation 1961 2208 12.6%
    Profit before tax/(loss) 5,303 2,972 -44.0%
    Tax 1,768 862.8 -51.2%
    Profit after tax/(loss) 3,536 2,109 -40.3%
    Extraordinary gains/(losses) 1 1  
    Net profit 3,537 2,110 -40.3%
    Net profit margin# 12.6% 8.1%  
    No of shares (m)   238.0  
    Diluted EPS (Rs)*   8.9  
    P/E (times)*   10.9  
    #excluding extraordinary items; *trailing twelve month earnings

    What has driven performance in FY11?
    • Madras Cement's topline reported a decline of 7% YoY during the financial year ended March 2011. The company has not announced sales volumes. However, we believe that lower realisations due to overcapacity are the main reasons for the subdued topline.

    • At the operating level, profits declined by 27.9% YoY during FY11. Higher employee and power costs (as a percentage of net sales) drove operating expenses higher during the year. The company's EBITDA margin dropped significantly from 30.6% in FY10 to 23.7% in FY11.

      Operating Cost break-up
      (Rs m) FY10 FY11 Change
      Raw Material Consumption 3984 3907 -2.0%
      % of net sales 14.2% 13.9%  
      Employee Cost 1373 1540 12.2%
      % of net sales 4.9% 5.5%  
      Power & Fuel 5963 6607 10.8%
      % of net sales 21.3% 23.6%  
      Transportation & Handling 4684 4643 -0.9%
      % of net sales 16.7% 16.6%  
      Other Expenditure 3436 3178 -7.5%
      % of net sales 12.3% 11.3%  
      Total operating expenditure 19440 19875 2.2%
      % of net sales 69.4% 71.0%  

    • At the bottomline level, net profits for the year declined substantially by 40.3% on account of poor realisations and higher operating expenses. Net profit margins dipped from 12.6% in FY10 to 8.1% in FY11. Even a rise in other income and fall in tax expenses was enough to arrest the fall in the bottomline.

    • The company's board has approved a dividend of Rs 1.25 per share for FY11. This translates into a dividend yield of 1.3% at the current stock price level.

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