Saturday, October 24, 2009


Chettinad Cement has reported excellent result for Q2 FY 2010. Net sales grew @ 28.7% to Rs. 361.16 crore (Rs. 280.7 crore). OPM% improved significantly to 40.8% (35.4%) owing to reduction in material cost to 11.6% (14.1%) of sales (in view of lower cost of coal and steel) and in other expenditures to 20.7% (24.6%) of sales. Consequently, PBT more than doubled to Rs. 65.73 crore (Rs. 30.99 crore) even after accounting for 77.9% spurt in interest of Rs. 22.66 crore in view of on-going capacity expansion. However, higher tax rate of 32.3% (-10.2%) restricted growth in PAT of Rs. 44.49 crore (Rs. 34.16 crore) to 30.2%.

For H1 FY 2010, net sales registered 29% growth in sales of Rs. 726.07 crore (Rs. 563.03 crore). OPM% enhanced to 39.8% (37.4%) resulting in 45.2% surge in PBT of Rs. 117.13 crore (Rs. 80.65 crore) after absorbing almost doubled finance cost of Rs. 44.08 crore (Rs. 22.88 crore). However, owing to nominal tax rate of 32% (3.7%), PAT of Rs. 79.63 crore (Rs. 77.7 crore) inched up by just 2.5%

CCL is Tamil Nadu based cement player with major markets in Tamil Nadu, Kerala and Karnataka.

With government focusing on development of infrastructure and impetus to housing sector, there is lot of opportunities for Cement Industry both in short term and long term.

To cater to growing demand, CCL is on expansion spree. Company has commissioned Line-I Greenfield Cement manufacturing unit with 2 million tpa capacity in Q4 FY 2009 and expects 2nd units with 2 million tpa capacity to commission during FY 2010. Moreover, it has also started process of land acquisition for its proposed 2 million tpa Greenfield Cement Plant at Karnataka. Meanwhile, Board of Directors have approved proposal for installing 2nd cement manufacturing facility with 2 million tpa capacity at Karikkali, thus taking cement capacity to ~ 10 million tpa. Company is also enhancing its power generation capacity from 15 mw to ~ 70 mw.

All these proposed plants should be commissioned and ready for production by the time Indian and world economy is fully on the path of resurgence and thus, company would be in a position to make the most of the economic recovery.

Company’s cash generation is significant. In H1 FY 2010, cash profit was s. 214.89 crore (Rs. 235.7 crore in FY 2009 full year).

At CMP of Rs. 416/-, the share (Rs. 10/- paid up) is trading at 6.9 times FY 2010 expected EPS of Rs. 60/-. In view of excellent future prospects, we recommend to “BUY” the share at CMP.