Guj Ambuja: Looking for a turnaround - Views on News from Equitymaster

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Guj Ambuja: Looking for a turnaround

Feb 5, 2001

Gujarat Ambuja Cements has reported a 40% drop in net profits for the quarter ended 31st December 2000. The company has witnessed an erosion in operating margins. Other income too has dropped sharply, putting additional pressure on the profitability of the company.

(Rs m) 2QFY00 2QFY01 Change
Net Sales 2,830 2,980 5.3%
Other Income 40 20 -50.0%
Operating Profit (EBDIT) 1,080 1,040 -3.7%
Operating Profit Margin (%) 38.2% 34.9%  
Interest 220 390 77.3%
Depreciation 310 320 3.2%
Profit before Tax 550 330 -40.0%
Tax - -  
Profit after Tax/(Loss) 550 330 -40.0%
Net profit margin (%) 19.4% 11.1%  
No. of Shares (eoy) (m) 147.2 147.2  
Diluted Earnings per share#* 14.9 9.0  
*(annualised)      

The company has witnessed a sharp increase in interest cost mainly on account of the large expansion plans that are underway. Infact, Gujarat Ambuja has recently completed a US$ 100 m issue of a hybrid security which will bear an interest cost of just 1% per annum. This should suppress the interest cost in the coming quarters.

The earthquake in Gujarat is anticipated to benefit the company once the reconstruction work takes off. However, in the interim, there could be a slowdown in supplies as the requisite infrastructure to transport the commodity has been damaged.

The company's performance is in contrast to its peers which have benefited from the production cuts affected in the month of December. These cuts had led to a sharp rise in realisations, thus boosting operating margins.

The stock currently trades at Rs 205, implying a P/e of 9x.

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