What are the long-term prospects of Madras Cements?
Madras Cements (MCL), the flagship company of the Ramco group is the fifth largest cement producer in the country. A predominantly south-based company; it derives over 90 per cent revenues from the four southern states, with Tamil Nadu alone accounting for 50 per cent revenues. Currently, MCL is concentrating on maximising profits and has no future capacity expansion plans unlike other cement manufacturers that are focusing on capacity expansion.
The existing 2 million capacity expansion at Ariyalur has been commissioned and the capacity at the grinding unit at Salem in being enhanced by 1.2 million tonnes which will take the total capacity to 15.5 million tonnes by the end of FY12. Likewise, the proposed 45 MW power plant is also expected to be commissioned in the first quarter of FY13, which will reduce dependence on external power significantly.
Its PE ratio is at a premium of 10.4 per cent to its five-year median PE of 8.4. But MCL has a total debt of Rs 2,791.2 crore including Rs 603.8 crore interest free sales tax deferred loan that is to be paid over 14 years. It is planning to repay its debt over the next 4-5 years with an average annual outgo of `300-400 crore which will gradually improve the debt-equity that averaged 1.6 times over five years. Based on low EPS growth of 5.6 per cent over five years, the stock's PEG is unattractive at 1.7, making the stock valued expensively. Watch out for this stock till valuations improve.
This article was originally published on March 26, 2012.
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