I want to buy shares in Madras Cement. Could you tell me the outlook for this stock?- T.K. Sridhar
Madras Cement came out with better-than-expected numbers in the March 2011 quarter. Revenue at Rs 686.4 crore was up 9 per cent y-o-y while PAT at Rs 63.7 crore was up 118 per cent y-o-y. Cement realisation was up 30 per cent y-o-y. Volumes were up 18 per cent q-o-q but lower by 16.6 per cent on a y-o-y basis.
The biggest concern for cement companies though is the demand scenario, especially in the Southern region where significant capacity additions have been undertaken in the last few years. Q4FY11 saw demand decline by 4 per cent, chiefly due to slump in demand in Andhra Pradesh and Tamil Nadu. Madras Cement is particularly vulnerable as it derives 93 per cent of its revenues from South India. Industry analysts are of the view that any revival won’t happen before FY13.
The company’s expansion plan at Ariyalur (2mt) capacity addition is expected to be completed by June 2011 which will add to total volumes. The company has a debt to equity ratio of 1.5 which is also a matter of concern. The stock trades at 11 times its FY11 earnings. But given the sluggish demand outlook in the South, you should stay away from this stock for the present.
This article was originally published on July 22, 2011.
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