Mangalam Cement Reaches All-Time High: Soars 210% in 9+ Months!

Mangalam Cement’s Record Surge to a New All-Time High

The all-time high of Mangalam Cement can be a result of many factors. Its previous all-time high was made on 22 December 2023 at ₹ 721.5. It took 06 days to create a new all-time high at ₹ 737.15 on 28 December 2023. In between, it made a low of ₹ 680.2 on 26 December 2023, implying a correction of over 5%. It may represent a change in the investors’ sentiment about the company due to improved financial condition or may represent overvaluation. Let’s go through the factors contributing to its all-time high.

Factors Contributing to a Stock’s All-Time High

Positive Earnings Reports

• In Q2 FY24, the revenue of the company increased by 7.26% year-on-year and reached ₹ 428 crores.
• The gross profit of Mangalam Cement increased by 51.83% year-on-year due to higher revenue and lower cost of goods sold. It earned a gross profit of ₹ 178 crores.
• In the last 3 years, it has maintained a steady dividend per share of ₹ 1.50.

Favorable Industry Trends

• The Indian government has set an ambitious goal of making India a $ 5 trillion economy by 2030. To increase the country’s GDP, India needs substantial investment in infrastructure projects, most of which use cement as a raw material. Mangalam Cement can see an increased revenue due to the increase in spending on infrastructure projects.
• Cement production is a capital-intensive business, and even a small efficiency increase in cement production can result in a significant increase in the profit of companies. To optimize the production process, companies need to adopt automation, AI, data analytics, etc. Mangalam Cement can use the latest technological advancements to reduce the cost of production.
• Cement, being a raw material with demand almost all over India, can benefit from the regional factors and lack of competition in certain regions. Mangalam Cement can benefit by operating in a region that has high localized demand, thus reducing the cost of products for the end users.

Positive Analyst Ratings

According to Simply Wall Street, based on the discounted cash flow model, the fair value of Mangalam Cement’s share is ₹ 1562.61. However, its CMP is ₹ 727.60, which means the stock is 525.5% undervalued. It has a price-to-earnings ratio of 46.8x, which is higher than the peer average of 31.5x, thus making it overvalued. The company has become profitable over the last 5 years, with 30.9% earnings growth over the past year. Its current net profit margin of 2.5% is higher than the previous year’s value of 1.9%. Its earnings are expected to grow at 79.19% per year, which will be faster than the 16.4% per year growth of the Indian market.

Potential Scenarios Following an All-Time High

(Based on the chart of 1-month timeframe)

Converting numbers and candles into information can provide us with the market’s stance on the stock, which may help us make correct investment decisions. Since the listing of Mangalam Cement in January 2003, it has made only 18 all-time highs after a gap of at least a month. In August 2023, it started its bull rally with higher highs and higher lows every month. We can expect the trends to continue so the investors may enter the stock at the price of their liking but keep the stop loss at the low made in the previous month.

Making Informed Investment Decisions

For any stock, reaching an all-time high is a significant milestone. Still, conducting thorough research and considering various factors is essential before making investment decisions. To make informed choices that align with your investment goals and risk tolerance, one needs to analyze the company’s fundamentals, industry trends, management’s strategy, and overall market conditions.

Company’s Financial Health

• In 2022, Mangalam Cement had a debt of ₹ 621 crores with a negative free cash flow of ₹ 51.11 crores and cash & equivalents of ₹ 50.90 crores. It shows a massive difference between the debt and funds, which makes it essential for the company to increase the amount under free cash flow or cash & equivalents.
• In the short term, it has a liability of ₹ 779 crores covered by assets of ₹ 669 crores. The assets of ₹ 1474 crores cover its long-term liabilities of ₹ 594 crores. The company may need to sell its long-term assets to increase the coverage of short-term liabilities.

Industry Outlook

• The European Union has already placed a carbon tax on the cement imported from outside its region and thus made the imports expensive. A similar push can be seen from many other countries as they try to keep their carbon emission under the target. The industry may see a shift towards producing products according to international standards to reduce taxes and keep its products attractive compared to the local products.
• Due to globalization, the issue of one country quickly spirals to affect the economies worldwide. It results in volatile raw material prices, sudden changes in import-export policies, etc. Companies need to maintain their supply chain effectively for uninterrupted supply and be ready to face any challenges.

Market Sentiment

Due to a confluence of many factors the Mangalam Cement surged to a new all-time high of ₹ 737.15. The jump due to significant gains over a few months is driven by improved financial health, including increase in revenue and gross profits. Analyst rating of undervaluation based on growth projection can also influence investors. The company needs to adopt the latest technology in line with the requirement for international trade to keep its products relevant in future. The various factors listed have created a landscape of both opportunity and challenges. Investors need to conduct detailed research, considering factors like company fundamentals, industry trends, and financial health, to make informed investment decisions.