Mangalam Cement (MCL), a BK Birla
group company having its plant in Rajasthan, has expanded its cement capacity
by 1.25mtpa (increase of 63%) to 3.25mtpa (as of end-FY2014). We expect MCL
to report a healthy 21.8% volume CAGR over FY2014-16E on the back of improved
outlook for cement demand (also MCLs production in FY2014 was lower due to
plant shut down for a few months for up-gradation, leading to lower base). At the current market price of Rs246, the stock is trading at trailing
EV/tonne of $49 (on its 3.25mtpa installed capacity), which is at a large discount
to its midcap peers (The peers like India cement, JK cement, JK lakshmi and
Ramco Cement are trading at EV/tonne of $70, $75, $120 (including expanded
capacity $104) and $121 respectively). The stock is trading at 12.6x and 7.9x its
FY2015E and FY2016E EPS and 7.5x and 4.8x its FY2015E and FY2016E
EV/EBITDA, respectively. We initiate coverage on Mangalam Cement with a Buy
recommendation and target price of Rs337 based on EV/tonne of $60 and
implying 6.5x FY2016E EV/EBIDTA. The EV/EBITDA target multiple is at a 10%
discount to the companys other midcap peers in the cement space.

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