Mangalam Cement- The Turnaround Story

While the Cement sectors have been giving an average return of 39% against the 11% jump by benchmark BSE Sensex in FY17 so far, Mangalam Cements have been busy creating a turnaround story. The company had reported a good set of Q1 FY17 numbers.

Revenues grew 6.0% yearly to Rs 224.1 crore as against the estimate of Rs 207.4 crore. The growth was led by better realizations, up 5.9% Year-on-Year to Rs 3,705 as compared to the estimate of Rs 3,700 due to strong presence in north, where prices remained healthy. The Operating profit has turned positive from Negative. While the value stood at the loss of Rs. 10.76 in June 2015, it now stands at the profit of Rs. 39.05 in the June quarter of FY17. On the other hand, sales volume of the company remained flat at 0.61 MT and even then it outperformed the expectation of 0.56%. EBITDA/ton improved from a loss of Rs 68/t to profit of Rs 778/t mainly due to lower clinker production and decline in power cost by 36.3% yearly, as pet coke prices were down 21.7% YoY.

The demand recovery in the sector, led by higher infra expenditures by the Government, good monsoon and Seventh Pay Commission is expected to boost company’s cement volumes in the next few years. This, along with an improving pricing scenario in the company’s key markets, is expected to result in revenue CAGR of 15.3% in FY16-18. In addition, freight cost rationalization, VAT incentives in Rajasthan and fuel cost savings will probably boost the margins.

The show stealer:As the table above shows, the PAT has gone up from the loss of Rs. 18.84 to the profit of 22.59 which is commendable. But what’s stealing the show is the EPS of Mangalam Cements that has turned from the negative of Rs. 7.06 to the benefit of Rs. 8.73. The cherry on the top is percentage of promoters holding pledge reduced to NIL from that of 52.Mangalam Cements share price have moved heavily after the Budget and Brexit. The stock has seen the jump of 171% since Brexit and 281% since the Budget.

PE:PE of an entity plays a very important role in determining its worth. With the Average Industry PE of 55.69, the PE of Mangalam Cements stands at 46.59. Among the peers it almost stands at par regarding PE, leaving apart Ramco that has the lowest PE of 21.79.

Other Achievements:In August, Mangalam Cements have commissioned the trial and run of a new Cement Grinding Unit at Aligarh. This unit has the capacity of 0.75 Million Ton Per Annum. The overall capacity has now increased from 3.25 MTPA to 4 MTPA.Mangalam Cement was promoted in 1978 by the famed house of Shri B.K. Birla and it has come a long way, from negatives to positives, since then. It is admirable how the company has turned around its major figures in almost last two quarters. The market is taking a positive stance on the entity.