Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Madras Cements: Higher costs dent margins - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Madras Cements: Higher costs dent margins

May 29, 2009

Performance summary
  • Topline grows by 26% YoY during FY09, mainly led by strong demand for the commodity.
  • Higher costs of operation exert pressure on operating margins that decline by 6.6% in FY09 to 30.8%.
  • While operating profits grow by 3.5% YoY, bottomline declines by 11% YoY. This is mainly on account of higher depreciation and interest costs.
  • The board recommends final dividend of Re 1 per share apart from the interim dividend of Re1 per share. Thus, the total dividend declared for the full year is Rs 2 per share. This translates into a dividend yield of 1.9%.

Financial performance snapshot
(Rs m) FY08 FY09 Change
Net sales 20,119 25,304 25.8%
Expenditure 12,596 17,520 39.1%
Operating profit (EBITDA) 7,523 7,784 3.5%
EBITDA margin 37.4% 30.8%  
Other income 95 151 58.9%
Interest 517 1,100 112.8%
Depreciation 933 1,377 47.7%
Profit before tax/(loss) 6,168 5,458 -11.5%
Tax 2,085 1,823 -12.6%
Profit after tax/(loss) 4,083 3,635 -11.0%
Net margin 20.3% 14.4%  
No of shares (m)** 12.1 238.0  
Diluted EPS (Rs)*   15.3  
P/E (times)   6.9  
*trailing twelve month earnings **For the full year ended March, 2009, no of shares has been adjusted for sub-division of equity
shares of Rs 10 each into 10 equity shares of Rs 1 each and issue of bonus shares in the ratio of 1:1.

What has driven performance in FY09?
  • Madras Cements reported double digit sales growth of 26% YoY during FY09. The robust growth could be attributed to strong growth in volumes and realisations. Madras Cements does not publish volume numbers and hence it is difficult to comment on the same. However, being a major player in the southern region, the company must have benefited from the favourable demand scenario witnessed there. The southern region has witnessed nearly 10% YoY growth in volumes and nearly 6% YoY growth in realisations.

    Cost break-up
    (% of net sales) FY08 FY09
    Raw material consumed 12.3% 14.3%
    Staff costs 4.0% 4.3%
    Power & Fuel 20.3% 23.8%
    Transportation & handling 14.2% 15.1%
    Other expenditure 11.8% 11.7%

  • The higher cost of operations continued to exert pressure on operating margins. All the cost heads witnessed expansion on a percentage of sales basis. Apart from the inflationary pressure witnessed at the beginning of the year, higher input costs such as fuel prices caused the damage. The crude prices cooled off towards the end of CY08. The benefit of the same must have come in partly during 4QFY09 and partly to be reflected in the current quarter as companies within the industry must have cleared out earlier inventory.

  • While operating profits reported 3.5% YoY growth, net profits declined by 11% YoY largely on account of higher interest expenses and depreciation charges. The same was on the higher side on account of expansion plans outlined by the company. The company has expanded its installed capacity by 2 MTPA in Tamilnadu. Now, the installed capacity at the end of FY10 is 10 MTPA.

What to expect?
Madras Cements has achieved its capacity expansion target and as of now has no other capacity expansion plans. The outlined expansion plans would not only help Madras Cements cater to the increasing demand for the commodity but will also help the company sustain its market share. While this is a positive from a long-term perspective, in the medium term the company is expected to witness pressure on margins on account of higher interest and depreciation costs. Further, as the planned capacities become operational, the high realisations witnessed at present are not likely to be sustained.

The company has outperformed our topline estimates, while at the net level it has performed in line with our estimates. At the current price of Rs 106, the stock is fairly valued at an EV/ton of over Rs 4,100 as per our FY11 estimates and hence investors should practice caution while investing in the stock. We shall soon update our research report on the company.

To Read the Full Story, Subscribe or Sign In
To Read the Full Story, Subscribe or Sign In

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms


Mar 25, 2019 02:57 PM


  • Track your investment in THE RAMCO CEMENTS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks