Chettinad Cement: On firmer ground

Even as the cement sector is hurting in a tighter demand environment, the Tamil Nadu- based cement manufacturer saw its second quarter FY10 net profit up nearly 30% y-o-y to Rs 44.49 crore.

The company had reported a net loss of Rs 98.3 crore in the last quarter of FY09 after booking high depreciation.

Operating profit this quarter increased by nearly 50%. Lower input costs (coal and steel) this quarter, boosted operating margins (up 650 bps y-o-y) while sales improved by about 28.7%. Lower net profit growth rate was on account of 77% higher interest costs with regard to the company’s ongoing capacity expansion. Tax expenses were up 30%.

Gross sales, however, were down sequentially (-1% q-o-q) in this seasonally weak quarter after two quarters of buoyant sequential growth averaging over 18%.

Capex plans

The company is hoping to exploit an expected demand increase as the economy steps back into a higher gear by going on an expansion spree, according to the broking firm, Geojit BNP Paribas.

It has recently commissioned 2 million tonnes per annum (tpa) capacity manufacturing unit with in Q4 FY 2009 and expects double it this year. It plans to enhance this by another 4 million tpa, taking its total capacity to about 10 million tpa.  Power generation capacity is also likely to be augmented from 15 mw to about70 mw.

The stock trades at about Rs 415, at a valuation of 6.9x FY10 EPS of Rs 60 per share estimated by Geojit BNP Paribas reflecting their positive outlook on cement demand.