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Tuesday, November 24, 2009

Small Cap Cement Sector Stock To Buy - Mangalam Cements

The Mangalam Cement stock is possibly one of the cheapest in the cement sector right now, trading at just 2.6 times its trailing 12 months earnings. Also, the stock trades at just 1.2 times its book value for the year ended March 09, coupled with a high dividend yield of 4.6%. This stock provides an attractive investment opportunity as one of the long-term investments.

Small Cap Cement Sector Stock To Buy - Mangalam CementsMANGALAM Cement part of the BK Birla Group has grown aggressively over the past three years, thanks to robust demand conditions. Kumarmangalam Birla, who will inherit BK Birla controlled Kesoram Industries and Century Textiles, will own a 17.7% stake in Mangalam Cement via these entities and account for a significant portion of the promoter holding.

CAPACITY & EXPANSION PLANS
Mangalams capacity was 2 million tonne at the end of FY 09, double the level from two years ago. The company invested Rs 198.6 crore as capex during this period and its cash flow was Rs 277 crore. Despite the capex, Mangalam Cements leverage ratio was just 0.17 at the end of March 09, compared to 0.48 two years earlier.

Its key markets are Rajasthan, UP and Delhi, where demand conditions have remained strong thanks to governmentfunded projects and rural housing projects, and price realisations have also remained higher on a y-o-y basis. The board of Mangalam Cement had earlier given its in-principle approval for setting up a new cement plant with a capacity of 1.5 million tonne at its existing plant site in Rajasthans Kota district. In addition, the company plans to set up a captive power plant with a capacity of 17.5 MW, for which it has placed orders.

The cost of this expansion project is estimated at Rs 750 crore, which would be financed via internal accruals to the tune of Rs 300 crore and the remainder by debt. Given the strong cash flows of Mangalam Cement, financing this project over the next two years should not be a problem.

FINANCIALS
The companys operating profit margin rose by 1,460 basis points y-o-y to 36.2% in the September 09 quarter, helped by its realisation that improved an estimated 23.2% y-o-y to Rs 3919 per tonne. However , the companys total despatches declined 2.1% y-o-y to 423,000 tonne in the second quarter of FY 10.

Compared to its peers, Mangalam Cement has handled its operational costs quite efficiently. For instance, in the year ended March 09, the company spent nearly Rs 831 per tonne on power & fuel costs. The corresponding figure for Shree Cement and JK Cement was Rs 781.6 per tonne and Rs 1,000 per tonne, respectively, for FY 09. Also, while Mangalam Cement has reported a decline in its power cost over last three years, its other two peers have reported a rise.

Market Cap: 336.61
EPS (TTM): 46.76
**P/E: 2.70
P/C: 2.26
* Book Value: 107.79
* Price/Book: 1.17
Div(%): 55.00
Div Yield(%): 4.36
Market Lot: 1.00
Face Value: 10.00
Industry P/E: 9.20

Small Cap Cement Sector Stock To Buy - Mangalam Cements-Beta valuationsVALUATIONS
At Rs 120.4, Mangalam Cement trades with a P /E of just 2.6 times its trailing earnings. Binani Cement, on the other hand, trades at 5.4 times while JK Cement trades at 3.9 times. It's CMP is close to book value making it a value stock.

Mutual Fund, SBI Magnum Emerging Businesses Fund (Growth), holds stocks of Mangalam cement in it's portfolio.

Considering all valuations and growth opportunities due to reviving demand from infrastructure sector, Investors may buy stocks of Mangalam Cement as long-term investment.
Source: I have used excerpts of article from ET Investors Guide along with my comments and other information.

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