Madras Cements (one of our Street Beat picks) has posted decent third quarter results, amidst difficult economic conditions and survived a cement dealers’ strike. We had recommended the stock on 8 May 2012 at Rs 107.10. The stock closed at Rs242.65 today, up by 126.78% in over eight months

We had recommended Madras Cements in our Street Beat section last year (http://www.moneylife.in/article/madras-cements-solid-foundation/25484.html). In an otherwise tough economy, characterised with sluggish infrastructure sector, decision paralysis at the Centre and a dealers’ strike in Kerala, Madras Cements posted decent results. It reported net sales of Rs904.95 crore for the quarter ended 31 December 2012, up 22% year-on-year (y-o-y), when compared to Rs744.07 crore for the same period last fiscsal. Operating profit grew 12% y-o-y, from Rs210.49 crore to Rs234.71 crore. Net profit was Rs83.60 crore for the quarter ending 31 December 2012 as against Rs76.84 crore for the corresponding period last year, up 9.21%. Even though the results were generally above expectations, it was blighted by the cement dealers’ strike in Kerala.
 

Earlier, the company was impacted by the Competition Commission of India’s (CCI) decision to penalize it for alleged cartelization. The CCI levied a fine of Rs258.63 crore on 20 June 2012. This hit the company hard but it seems to have recovered a lot since then, and even posting positive results, after it filed an appeal before the Competition Appellate Tribunal (CAT) which stated that “no coercive steps should be taken for recovery of penalty. “
 

An in-depth look into Madras Cements numbers reveals that the company has been living up to expectations. Its net sales growth rate of 22% for the December 2012 quarter nearly matched its three-quarter average growth rate of 24%. Also, the results aren’t too bad considering that the infrastructure segment as a whole has been hit by poor decision making and bureaucracy. Further, the cement dealers’ strike in Kerala which lasted 16 days in November 2012 had affected sales volumes of the company. Its operating profits grew 12% y-o-y which is less than the three-quarter average of 18%. Its return on networth stood at 21%, which is above average while valuations remain depressed. The company is quoting a market capitalisation of six times its operating profit, which is on the lower end of the valuation scale. This is due to the general decision paralysis by the government on the infrastructure segment. Cement is largely cyclical and tends to perform during non-monsoon periods when construction usually picks up with full pace. So far it hasn’t happened.
 

The company is involved in two segments: cement and windmills. Nearly all the revenues arise from the cement segment. However, the latter made a loss of Rs7.30 crore which is too small to make a dent and affect the company’s overall numbers.
 

Madras Cements Limited has also declared a second interim dividend of Re1 per share of Re1 each for 2012-2013 fiscal to its shareholders.
 

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