Mangalam Cement - Rs.74.00

Incorporated in 1976, Mangalam Cement Ltd (MCL) is a part of the B.K. Birla Group and is engaged in the manufacture of ordinary portland cement, pozzolana portland cement and clinker. It has two units namely Managalam Cement and Neer Shree Cement, both at Morak in Rajasthan with installed capacities of 0.4 million TPA and 0.7 million TPA respectively. It manufactures cement through the dry process using vertical raw mills & sells under the brand names ‘Mangalam’ and ‘Birla Uttam’. To meet its raw material requirement, the company has leased limestone-bearing land adjacent to its plant, which has reserves for the next 50 yrs. The company operates in the northern region with a key presence in the markets of Rajasthan, Western UP, Gujarat and Delhi. Incidentally, the North is the fastest growing region and the cement price realisation is also higher in this zone compared to other parts of India.

Financially, MCL went through tough times earlier and reported losses for many years. In 2000, its networth was completely eroded and it became a sick unit. In May 2002, it came under the purview of BIFR and restructured itself. Recently, it met its financial obligations with a one-time settlement and received a waiver from institutions on the interest and principal to be repaid to become a debt free company. It also received sales tax liability write-back, which helped it improve its financial health. Finally, it turned around in FY04. Now the company is working smoothly at more than 130% capacity utilization and is expected to perform much better in coming quarters In fact, to save on the power costs, the company is setting up a captive thermal power plant with a 17.5 MW capacity expected to become operational by mid 2006.

With government’s thrust on infrastructure, construction of highways, sea ports, airports etc and the ongoing housing boom will lead to greater demand for cement and increase in cement prices is likely. But the biggest trigger for MCL will be its takeover by some multinational or bigger cement company. Earlier Grasim, Mexican cement major Cemex, Lafarge, Italicement and some Thailand based companies had shown interest in acquiring the company. Even if the takeover/merger doesn’t happen, MCL is fundamentally quite strong and can report Net Sales of Rs.315 cr. and NP of Rs.20 cr. for the year ending 30th Sept 2005. This works out to an EPS of Rs.7 on its current equity of Rs.28.20 cr. Considering its higher operating efficiency in FY06, it is estimated to report a turnover of Rs.360 cr. and bottomline of Rs.28 cr. leading to an EPS of Rs.10. Investors can buy at CMP with a price target of Rs.120 (60% appreciation) in 12~15 months.