4QFY2013 Result Update | Cement

June 4, 2013

Madras Cements
Performance Highlights
Quaterly results (Standalone)
Y/E Mar (` cr) Net Revenue Operating Profit OPM (%) Net Profit
Source: Company, Angel Research

NEUTRAL
CMP Target Price
Investment Period
% chg (qoq) 6.3 (30.4) (800)bp (23.6) 4QFY12 879 198 22.5 99 % chg (yoy) 5.5 (28.8) (732)bp (35.3)

`225 -

4QFY13 927 141 15.2 64

3QFY13 872 202 23.2 84

Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 5,347 2,366 0.8 269/136 47,938 1 19,546 5,919 MSCM.BO MC@IN

For 4QFY2013, Madras Cements (MC) posted a 35.3% yoy de-growth in its net profit to `64cr, impacted by weak cement prices, a surge in freight and raw material costs due to higher railway freight fares and higher diesel costs, and with volume growth being modest at just 3.7% yoy. We remain Neutral on the stock. OPM at 15.2%, down 732bp yoy: For 4QFY2013 MC posted a 5.5% yoy growth in net sales to `927cr. Top-line growth during the quarter was impacted by modest volume growth and weak realization. Further, change in accounting treatment for inter-segment revenue suppressed the overall revenue, although it didnt have any impact on the profit. The OPM for the quarter stood at 15.2%, down 732bp on a yoy basis, despite the higher realization, on account of increase in raw material, freight costs and other expenses. The EBITDA/tonne fell by 31.7% yoy and 39.2% qoq to `629. Outlook and valuation: Going ahead, we expect MC to post a 12.4% and 15.7% CAGR in its top-line and bottom-line respectively over FY2013-15. At the current market price, the stock is trading at a valuation of US$79/tonne on current capacity (US$59 on FY2015E capacity), which we believe is fair. We continue to maintain our Neutral recommendation on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 42.3 14.5 13.8 29.4

Abs. (%) Sensex MC

3m

1yr

3yr 8.8

(1.4) 16.4

(7.8) 65.5 121.3

Key financials (Standalone)

Y/E March (` cr) Net Sales % chg Net Profit % chg FDEPS (`) OPM (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/Tonne EV/EBITDA
Source: Company, Angel Research

FY2012 3,236 24.2 385 82.5 16.2 28.4 13.9 2.6 20.3 11.9 2.5 108 8.8

FY2013 3,788 17.1 404 5.0 17.0 25.4 13.2 2.3 18.3 12.2 2.0 79 7.8

FY2014E 4,234 11.8 440 8.8 18.5 23.9 12.2 1.9 17.2 13.0 1.7 66 7.0

FY2015E 4,788 13.1 541 23.1 22.8 24.0 9.9 1.7 18.2 15.1 1.3 59 5.6

V Srinivasan
022-39357800 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

Madras Cements | 4QFY2013 Result Update

Exhibit 1: Quarterly performance (Standalone)

Y/E March (` cr) Net Sales Net Raw Material Costs (% of Sales) Power & Fuel (% of Sales) Staff Costs (% of Sales) Freight & Forwarding (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (excl. Extr. Items) Provision for Taxation (% of PBT) Reported PAT PATM EPS (`)
Source: Company, Angel Research

4QFY2013 927 153 16.5 194 20.9 51 5.5 224 24.2 164 17.7 787 141 15.2 31 58 34 86 22 25.1 64 6.9 2.7

3QFY2013 872 118 13.6 199 22.8 49 5.6 181 20.7 124 14.2 670 202 23.2 43 69 34 124 40 32.4 84 9.6 3.5

% Chg qoq 6.3 29.3 (2.5) 4.9 24.2 32.6 17.3 (30.4) (800)bp (28.4) (16.4) (1.7) (31.0) (46.4) (23.6) (23.6)

4QFY2012 879 142 16.2 174 19.9 44 5.0 186 21.1 135 15.4 681 198 22.5 31 66 33 134 35 26.1 99 11.3 4.2

% Chg yoy 5.5 7.8 11.1 17.1 20.9 21 15.5 (28.8) (732)bp (0.9) (11.9) 1.1 (123.1) (38.5) (35.3) (35.3)

FY2013 3,788 530 14.0 810 21.4 196 5.2 769 20.3 520 13.7 2,825 963 25.4 179 281 84 588 185 31.4 404 10.6 16.9

FY2012 3,203 437 13.6 699 21.8 171 5.3 561 17.5 418 13.1 2,287 916 28.6 158 254 54 557 172 30.9 385 12.0 16.2

% Chg 18.3 21.3 15.8 14.5 37.0 24.4 23.6 5.1 (319)bp 12.7 10.5 57.1 5.5 7.1 4.7 4.7

Exhibit 2: Operational highlights

(` cr) 1,000 32.6 750 28.0 22.5 500 31.0 31.4 23.2 15.2 123 133 (%) 35.0 30.0 25.0 20.0 15.0 10.0 872 84 927 64 5.0 0.0 2QFY12 3QFY12 4QFY12 Net Sales 1QFY13 2QFY13 Net Profit 3QFY13 4QFY13 OPM (RHS)

819 111

879 99

250

741 77

989

Source: Company, Angel Research

June 4, 2013

999

Madras Cements | 4QFY2013 Result Update

Exhibit 3: 4QFY2013 Actual vs Angel estimates

(` cr) Net Sales Operating Profit OPM (%) Net Profit
Source: Company, Angel Research

Actual 927 141 15.2 64

Estimates 1,086 248 22.8 93

Variation (%) (14.6) (43.3) (763)bp (30.9)

Operational performance
For 4QFY2013 MC has posted a 6.3% yoy growth in its net sales to `927cr. Top-line growth during the quarter was impacted by modest volume growth (3.7% yoy) and weak realization. Volume growth was disappointing considering the company had posted an impressive 13.4% volume growth in 9MFY2013. Further, change in accounting treatment for inter-segment revenue suppressed the overall revenue although it didnt have any impact on the profit. Earlier the companys net sales included power generated by windmill division which was consumed by the cement division. As per the new accounting treatment the value of power consumed at the cement division has been reduced from both the overall net sales and power and fuel costs. Thus `22.5cr of such inter-segment revenue pertaining to the entire year was adjusted during the quarter, thereby suppressing the revenue. The OPM for the quarter stood at 15.2%, down 732bp on a yoy basis, despite the higher realization, on account of increase in raw material costs, freight costs and other expenses. The EBITDA/tonne fell steeply by 31.7% yoy and 39.2% qoq to `629. Exhibit 4: Volume and realization trend
2.50 2.00 1.50 1.00 0.50 0.00 3QFY12 4QFY12 1QFY13
Dispatches

5,000 4,500 4,000 3,500 3,000 2,500 2,000 2QFY13 3QFY13 4QFY13
Realization (RHS)

(mn tonnes)

2.1 1.8

2.2

2.0

1.9

2.2

Source: Company, Angel Research

MCs per tonne raw material cost rose by 18.0% yoy to `711. The freight cost per tonne during the quarter increased by 16.6% yoy to `1,016 on account of higher diesel costs and railway freight charges.

June 4, 2013

(`/tonne)

Madras Cements | 4QFY2013 Result Update

Exhibit 5: Per tonne analysis

Particulars (`) Realization/tonne Raw material cost/tonne Power & fuel cost /tonne Freight cost/tonne Other costs/tonne Operating profit/tonne
Source: Company, Angel Research

4QFY13 4,465 711 878 1,016 743 629

3QFY13 4,548 689 1,047 952 651 1,035

4QFY12 4,354 602 819 872 635 922

% chg (yoy) 2.6 18.0 7.1 16.6 16.9 (31.7)

% chg (qoq) (1.8) 3.1 (16.2) 6.8 14.0 (39.2)

Exhibit 6: Segmental performance

(` cr) Revenue Cement Windmill Total EBIT Cement Windmill Total 236 (33) 203 180 (7) 173 30.8 0.0 17.2 234 (14) 219 1.0 134.1 (7.6) 880 22 902 799 827 10.2 9.1 28 (22.4) 886 6 892 864 9 872 2.6 (32.9) 2.3 927 7 934 (4.4) (12.8) (4.5) 3,744 110 3,853 3,162 96 3,258 18.4 13.9 18.3 4QFY13 3QFY13 chg % qoq 4QFY12 chg % yoy FY13 FYY12 chg %

Source: Company, Angel Research

Investment rationale
New CPPs to reduce power costs: MC, which currently has 112MW of captive power plants (CPPs), is currently in the process of adding another 45MW of CPPs, thereby taking its total CPP capacity to ~157MW. We expect the increase in CPPs to result in lower per-tonne power and fuel costs. The companys efficiency too has improved as indicated by reduction in the electricity consumption per tonne of cement from 83kwh in FY2011 to 78kwh in FY2012. Coal consumed per tonne of clinker too has reduced from 0.14/tonne to 0.12/tonne.

Outlook and valuation

Going ahead, we expect MC to post a 12.4% and 15.7% CAGR in its top-line and bottom-line respectively over FY2013-15. At the current market price, the stock is trading at a valuation of US$79/tonne on current capacity (US$59 on FY2015E capacity), which we believe is fair. We continue to maintain our Neutral recommendation on the stock.

June 4, 2013

Madras Cements | 4QFY2013 Result Update

Exhibit 7: One-year forward EV/tonne (US$)

120,000 100,000 80,000 EV (` mn) 60,000 40,000 20,000 0 May-13 Nov-05 Nov-06 Jan-04 Jul-10 Jun-11 Apr-01 Mar-02 Feb-03 Oct-07 Aug-09 Dec-04 Sep-08 Jun-12 EV/tonne $50 $70 $90 $110

Source: BSE, Company, Angel Research

Exhibit 8: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements UltraTech Cements Reco Accum. Neutral Neutral Buy Neutral Neutral Neutral CMP (`) 1,218 175 68 106 225 4,777 1,861 Tgt. Price (`) 1,361 143 Upside (%) 11.7 34.3 FY2015E P/BV (x) 2.5 2.6 0.6 0.7 1.7 3.0 2.5 FY2015E P/E (x) 13.3 14.4 6.2 4.9 9.9 12.9 15.5 FY2013-15E EPS CAGR 10.6 9.1 35.1 15.6 15.7 15.2 9.3 FY2015E RoE (%) 20.0 18.6 9.0 16.3 18.2 25.4 17.3 EV/tonne^ US $ 116 157 59 38 77 164 191

Source: Company, Angel Research; Note: *Y/E December; ^ Computed on TTM basis

Company Background
Madras Cements is one of the largest cement players in southern India, with a capacity of 14.5mtpa (incl 1.95mtpa of split grinding capacities). The capacities are spread across TN (9.55mtpa), AP (3.7mtpa); and Karnataka (0.3mtpa). Apart from these, the company has a grinding plant at Kolaghat in West Bengal (1mtpa) and also a wind power generation capacity of ~112MW.

June 4, 2013

Madras Cements | 4QFY2013 Result Update

Profit and Loss Statement (Standalone)

Y/E March (` cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY10
2,801 14.0 1,944 398 596 137 812 857 10.0 30.6 196 661 3.1 23.6 151 20 3.8 530 (2.9) (0) 531 177 33.3 354 (2.9) 12.6 14.9 14.9 (2.9)

FY11
2,605 (7.0) 1,987 391 661 154 782 617 (28.0) 23.7 221 397 (40.0) 15.2 139 40 13.4 297 (44.0) (0) 297 86 29.0 211 (40.4) 8.1 8.9 8.9 (40.4)

FY12
3,236 24.2 2,318 438 730 171 979 918 48.7 28.4 254 664 67.4 20.5 158 52 9.3 557 87.5 (0) 557 172 30.9 385 82.5 11.9 16.2 16.2 82.5

FY13
3,788 17.1 2,825 530 810 196 1,289 964 5.0 25.4 281 683 2.9 18.0 179 84 14.3 589 5.6 589 185 31.4 404 5.0 10.7 17.0 17.0 5.0

FY14E
4,234 11.8 3,224 649 894 216 1,465 1,011 4.9 23.9 296 714 4.6 16.9 143 85 12.9 656 11.5 656 217 33.0 440 8.8 10.4 18.5 18.5 8.8

FY15E
4,788 13.1 3,640 734 992 237 1,677 1,147 13.5 24.0 301 846 18.4 17.7 123 85 10.5 808 23.1 808 267 33.0 541 23.1 11.3 22.8 22.8 23.1

June 4, 2013

Madras Cements | 4QFY2013 Result Update

Balance Sheet (Standalone)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Other long term laibilities Long term provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Long term loans and adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
1,135 35 532 568 546 589 21 4,710 4,811 1,119 3,693 318 89 5,110 1,318 3,793 546 267 166 933 40 325 567 290 642 5,415 5,670 1,555 4,115 528 267 110 1,039 47 292 699 296 743 5,763 6,170 1,836 4,335 416 266 110 1,345 54 393 898 1,032 313 5,440 6,270 2,132 4,138 566 266 110 1,551 87 431 1,033 1,088 463 5,543 6,370 2,433 3,937 766 266 110 1,761 147 444 1,169 1,156 605 5,684 4,710 24 1,534 1,558 2,567 585 24 1,711 1,735 2,791 589 287 12 5,415 24 2,027 2,050 2,710 649 320 33 5,763 24 2,347 2,371 2,000 716 320 33 5,440 24 2,725 2,749 1,725 716 320 33 5,543 24 3,191 3,215 1,400 716 320 33 5,684

FY10

FY11

FY12

FY13E

FY14E

FY15E

June 4, 2013

Madras Cements | 4QFY2013 Result Update

Cash flow statement (Standalone)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Decin Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances
103 56 (7) 55 (3) 39 35 225 35 (137) 327 5 35 40 (81) 54 (137) 3 7 40 47 (711) 56 (40) (727) 7 47 54 (336) 33 54 87 (401) 60 87 147 (275) 61 (325) 76

FY10
531 196 (119) 20 89 498 (576) (0) 20 (556)

FY11
297 221 (49) 40 86 343 (527) (179) 40 (666)

FY12
557 254 (93) 52 172 494 (542) 1 52 (489)

FY13E
589 281 437 84 185 1,037 (388) 1 84 (303)

FY14E
656 296 (117) 85 217 535 (250) 85 (165)

FY15E
808 301 (82) 85 267 676 (300) 85 (215)

June 4, 2013

Madras Cements | 4QFY2013 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) FY10 FY11 FY12 FY13E FY14E FY15E

15.1 9.7 3.4 1.0 2.9 9.4 1.7 14.9 14.9 23.1 2.3 65.5 23.6 66.7 0.6 10.0 4.0 1.8 20.6 14.8 17.1 25.1 0.6 48 16 93 64 1.6 2.8 4.4

25.4 12.4 3.1 0.6 3.1 13.0 1.5 8.9 8.9 18.1 1.5 72.9 15.2 71.0 0.5 5.6 3.7 1.6 8.7 7.8 8.8 12.8 0.5 56 23 77 81 1.5 4.3 2.8

13.9 8.4 2.6 1.0 2.5 8.8 1.4 16.2 16.2 26.9 2.3 86.2 20.5 69.1 0.6 8.3 4.0 1.5 14.5 11.9 13.5 20.3 0.6 50 22 46 73 1.3 2.8 4.2

13.2 7.8 2.3 1.1 2.0 7.8 1.4 17.0 17.0 28.8 2.4 99.6 18.0 68.6 0.7 8.4 5.2 1.1 11.9 12.2 13.7 18.3 0.6 52 25 86 46 0.8 1.9 3.8

12.2 7.3 1.9 1.1 1.7 7.0 1.3 18.5 18.5 30.9 2.6 115.5 16.9 67.0 0.8 8.8 5.1 0.7 11.5 13.0 14.8 17.2 0.7 55 28 120 27 0.6 1.5 5.0

9.9 6.3 1.7 1.4 1.3 5.6 1.1 22.8 22.8 35.4 3.2 135.1 17.7 67.0 0.9 10.3 5.3 0.5 13.0 15.1 17.8 18.2 0.8 55 29 112 32 0.4 1.0 6.9

June 4, 2013

Madras Cements | 4QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Madras Cements No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

June 4, 2013

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