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looks like excellent call mr.market.........
i checked the fundamentals they are simply superb.but there may be a cause for this company to trade at 3 PE perhaps market discounting the future production increase and competition between companies.
H1FY10 EPS@25 vs FY09 EPS@35 looking GOOD
Last edited by ramkasi : 2nd December 2009 at 03:14 PM.
just a few days back, Economic Times also had an article on Mangalam Cement.
it seems the company is planning a huge expansion.
Quote:
Mangalam Cement had earlier given its in-principle approval for setting up a new cement plant with a capacity of 1.5 million tonne at its existing plant site in Rajasthan's Kota district. In addition, the company plans to set up a captive power plant with a capacity of 17.5 MW, for which it has placed orders.
The cost of this expansion project is estimated at Rs 750 crore, which would be financed via internal accruals to the tune of Rs 300 crore and the remainder by debt. Given the strong cash flows of Mangalam Cement, financing this project over the next two years should not be a problem.
there is a risk that
-the expansion doesn't go as planned.
or
-by the time the expansion is completed the business may not be profitable as now.
commodities are cyclical in nature and an expansion that is done at the top of the cycle, can prove to be a financial disaster for a company.
The cost of this expansion project is estimated at Rs 750 crore, which would be financed via internal accruals to the tune of Rs 300 crore and the remainder by debt. Given the strong cash flows of Mangalam Cement, financing this project over the next two years should not be a problem.
The FY08-09 Reserves stand at 261 Cr. Are they planning to use their entire Reserves to fund their part of 300Cr? Is this a wise move?
The Net Cash flow for the past three years were 14.33Cr, -10.64 Cr and 29.57 Cr. Does this qualify as strong Cash Flow?
Current Debt to Equity ratio is 0.02. FY09 equity is 294.33 Cr. If the Debt they plan to take on is 750-300 = 450 Cr, the Debt to Equity ratio will jump to 1.53. Is the company over leveraging itself?
The FY08-09 Reserves stand at 261 Cr. Are they planning to use their entire Reserves to fund their part of 300Cr? Is this a wise move?
The Net Cash flow for the past three years were 14.33Cr, -10.64 Cr and 29.57 Cr. Does this qualify as strong Cash Flow?
Current Debt to Equity ratio is 0.02. FY09 equity is 294.33 Cr. If the Debt they plan to take on is 750-300 = 450 Cr, the Debt to Equity ratio will jump to 1.53. Is the company over leveraging itself?
"Reserves" are not the cash with the company.
They are actually the earnings that the company has retained over the years.
These may have been already invested in creating capital assets etc.
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"Strong cash flow" doesn't mean the change in cash position of the company.
Usually, companies prefer to keep low levels of cash/cash equivalents.
This is because the returns on cash and cash equivalents are poor.
When companies accumulate too much cash, shareholders pressurize the management to either invest the cash into more profitable businesses or reduce the cash levels by distributing a large dividend.
Many companies are such that they generate a lot of cash, but this cash needs to be reinvested back into the operations.
If a company generates a lot of cash every year and is in a position to retain most of this cash, it can be said to have "strong cash flows".
It is not necessary that this retained cash shows up as an increase in cash with the company.
I joined this forum 2 days back and I have become a total fan of all of you guys. Thanks for all the posts, quick replies and the immense knowledge. I am trying to find some time to read the posts. There is a wealth of information which I want to capture in my little brain somehow. Alchemist, the posts by you are so very good and are very simple to understand. Economics all of a sudden looks interesting to me! Many Thanks.
Let me come to the specific queries on Mangalam cement.
Are we still betting on this?
I went through this stock today and have a few questions
What is the sales growth we are expecting for the FY10E?
What is the net profit margin expectation?
Also they are planning to take debt for the expansion, which will impair the current DE ratios. Is it good?
I calculated a target price for the stock according to the method from ‘Harry Domash- fire your Stock analyst’
For some reason the forum doesn’t allow me to attach excel or image.
I have taken very optimistic numbers of Sales growth =20% (Reason why it is optimistic – June Quarter YOY sales growth was 30.49% and Sep ’09 Quarter YOY sales growth was 17.72%).
Assumed Net profit margin 16%. Assumed high PE 4 (From March 2008 till date the highest PE it went was 4.18. So I assume that the market enthusiasm will be these levels within a year)
Target High PE 4.00
Target low PE 2.72
Target High price 154.73
Target Low price 105.22
Current market price 127.00
Upside potential at High Target 21.84%
Upside potential at Low Target -17.15%
As 2010E is almost over, I further calculated the 2011E estimates and here is what i have (The assumptions on sales & profit margins & P/E remaining the same as previous post)
Target High price 185.68
Target Low price 126.26
Current market price 127.00
Upside potential at High Target 46.20%
Upside potential at Low Target -0.58%
Given the deep valuation (PEG of 0.08 ) , looks safe to enter with a time target of 1 year.
What is the sales growth we are expecting for the FY10E?
What is the net profit margin expectation?
Also they are planning to take debt for the expansion, which will impair the current DE ratios. Is it good?
Quote:
Originally Posted by Archana
Given the deep valuation (PEG of 0.08 ) , looks safe to enter with a time target of 1 year.
For FY 2010, the company may be able to achieve sales of around Rs 600 crore and PAT of 100-120 crore.
For FY 2011, I expect a fall of 15%-20% in sales and NPM to halve to around 10%-12%.
The reason is that in next few quarters a lot of new cement capacity will commissioned. Mangalam Cement's primary market is North India. The demand in North India is expected to remain strong for next 1 or 2 quarters because of the upcoming commonwealth games.
However, FY 2011 is expected to be a year where cement companies may face pricing pressure because of oversupply in the market.
Even if the company only achieves sales of Rs 500 crore and a net profit of Rs 50 crore - Rs 60 crore, it would still mean an eps of Rs 19 - Rs 22.5 for FY 2011.
At Rs 127, it means a PE of 6.7 - 5.6.
That is an attractive price considering it is paid at the bottom of the business cycle.
Right now, Mangalam Cement is a debt free company.
If it's able to achieve Rs 50 crore of PAT at the bottom of the cycle, it can easily handle 300-400 crore of debt.
(If PAT is 50 crore, pre-tax profit would be much higher and also once the new capacity is in place, the company can expect increase in sales and profits).
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As far as I know, Mangalam Cement is the cheapest cement stock in the market.
JK Lakshmi Cement also looks cheap on PE basis, but then JK Lakshmi Cement already has a Rs 600+ crore of debt. Mangalam Cement is debt-free as of now.
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PEG is best used for companies that are growing rapidly and where growth is certain for the next few years.
PEG shouldn't be used for cyclical business where revenues and profits are cyclical in nature.
The price/interest has come down from its August 2009 levels.
Also the Mutual funds have sold this recently as seen from moneycontrol. (SBI magnum Emerging business, which usually has a long term view). (Is there any other place to track the most recent institutional ownership pattern ?)
Do they know something we don't know ?
Unless we don't find any negatives, I am planning to buy this stock next week.
Also the Mutual funds have sold this recently as seen from moneycontrol. (SBI magnum Emerging business, which usually has a long term view). (Is there any other place to track the most recent institutional ownership pattern ?)
Do they know something we don't know ?
The November data hasn't been fully updated.
See the mutual fund table for Reliance Industries:
10 minutes back, Sajiv Dhawan recommended Mangalam Cement on CNBC TV18. (His prefered picks are the bigger cement stocks, but among the smaller companies, he likes Mangalam Cement).
As I suspected, most of the volumes in Mangalam Cement have come from "matched" block deals.
According to NSE's "bulk deals" announcements, Birla Sun Life Insurance Company bought another 5 lac shares @ 131 and Capital Group sold around 9.4 lac shares @ 131.
The other buyers in this deal must have bought in smaller quantities and thus have not been declared in "bulk deals" segment.
So what is the impact of this Buy/ Sell for us investors? I am not able to get a clear picture.
According to the books I read, it is better to get rid of the stock when the promoters sell. So the promoters sold 6 lakhs shares.
And this is followed by the FII (Capital Group) selling. From the observations I am making of late I see that the market index and stock price closely follow the FII activity. (I mean when the FIIs are net sellers , market corrects mostly and when the FII’s are net buyers the market closes high) http://www.moneycontrol.com/stocks/m...vity/index.php I guess, the retail investors end up buying from the FII’s
Birla Sunlife bought it at average 131. So I am just wondering who took the prices high! Is it retail enthusiasm due to the sudden volume in green?
So what are your thoughts? Promoters selling – Does that tell us, safely take the profit and exit?
Date Security Name Client Name Buy / Sell Quantity Traded Trade Price / Wght. Avg. Price
11-Dec-2009 Mangalam Cement Ltd BIRLA SUNLIFE INSURANCE CO.LTD BUY 598,745 126.02
11-Dec-2009 Mangalam Cement Ltd ECE INDUSTRIES LIMITED SELL 600,000 126.01
14-Dec-2009 Mangalam Cement Ltd BIRLA SUN LIFE INSURANCE COMPANY LIMITED BUY 500,000 131.00
14-Dec-2009 Mangalam Cement Ltd CAPITAL GROUP -A/C SMALL CAP WORLD FND INC SELL 499,471 131.02
14-Dec-2009 Mangalam Cement Ltd CAPITAL GROUP-A/C AMERICAN FUNDS INSURANCE SERIES GLOBAL SMA SELL 438,374 131.02
Please share your thoughts. Thanks in advance
Archana
According to the books I read, it is better to get rid of the stock when the promoters sell. So the promoters sold 6 lakhs shares.
If a promoter is selling, one should relook at the stock, but not sell blindly.
A promoter may sell for various reasons.
Sometimes, promoters sell because they need cash or just because they want to diversify their portfolio.
ECE Industries hasn't been doing well recently. The last quarter for ECE Industries was really bad and sales were not even half of what they were a year back. It is possible that ECE Industries needs cash to repay debt or for other reasons.
On 6th November, ECE Industries had sold 2 lac shares of Mangalam Cement, but the buyer of that block was another B.K. Birla Group company - "Aditya Marketing and Manufacturing".
As of now, I don't see any reason to exit Mangalam Cement.
Cement stocks were up yesterday as cement prices are firming up in some regions of the country.
148 and 174 are the technical resistances on the upside.
if someone wants to book partial profits, then he can use those levels to sell.
Mangalam Cement
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