Valuations of Mangalam cement look cheaper compared to its peers

MUMBAI: On an Enterprise Value (EV) per ton basis, Mangalam Cement seems to be one of the cheapest stock in the small size cement companies. The company is currently trading at a EV per ton of $35, which is nearly 30% lower than the average valuation of small and mid size peers.

Owing to higher dispatch volumes, the company has been able to report an EBIDTA margin of over 16% since the last three quarters. In the quarter ending June 2012, Mangalam Cements reported an EBIDTA per ton of Rs 765, which is in line with its mid size peers. Due to lower coal costs, cement manufacturers are likely to maintain this EBIDTA margins in the coming months.

The company is in the process of expanding its capacity by 1.25 million tons per annum (MTPA). With this, the total capacity of the company would reach to 3.25 MTPA by FY14. The total capex for the expansion is nearly Rs 500 crore. Due to a healthy balance sheet (Debt-to-Equity of 0.05), the company would not have any trouble in incurring the capex. In addition, with a higher capacity, the company will have better control on its input cost, which will in turn result in stable earnings.