Its cement and power plants are located at Rajasthan and it sells three products in cement - OPC grade 43, OPC grade 53 and PPC - under the brand name Birla Uttam Cement.
Currently, MCL sells 60% PPC and 40% OPC. The company sells 51% of the total output in the northern region and 49% in the central region. The major selling markets in both the regions are Rajasthan, Delhi, Haryana, Uttar Pradesh and Madhya Pradesh.
At present, Rajasthan constitutes 31% of the company’s cement volumes. It will increase to 50% on account of the sales tax benefit scheme announced by the state government on new capacity of 1.25 MTPA.
As per management calculation, the company will receive sales tax subsidy for 7 years starting from FY15. MCL will receive subsidy of around crore in FY15 (assuming the new capacity will operate for nine months.) Thereafter from FY16- 21), it will be around Rs.27 crore per year.
We expect EBITDA per tonne to improve to Rs 733 per tonne in FY16 from 241 per tonne in FY14 on the back of higher realization and recent cost initiatives undertaken by the company.
Under a strong government, the cement sector will benefit from a potentially faster recovery in the investment cycle, especially infrastructure.
While sector profitability could remain under pressure over the next 1-2 quarters, the long-pending infrastructure projects could be fast-tracked by the new government, resulting in demand recovery and higher profitability in the next two years.
The company has started commercial production of its additional cement capacity of 1.25MTPA from June ’14.
On the back of this expansion, we estimate cement volumes to grow at a CAGR of 18.4% during FY14-16E.
Realizations are also expected to improve at a rate of 14.5% CAGR during the same period, driven by a pick-up in demand. This, along with the benefit of operatingleverage would help in improving margins, going forward.
At the current market price, MCL is trading at 8.5x and 5.4x of its FY15E and FY16E EV/EBITDA, respectively.
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