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Cement – The leaders and laggards - Views on News from Equitymaster
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  • Apr 14, 2000

    Cement – The leaders and laggards

    The cement business, as against valuations, has performed well over the last year and a half. Although cement prices have remained under pressure, demand has been buoyant. Infact production grew 15% to touch 94 million tonnes in FY00. Demand grew 14.7% at 93.8 million tonnes.

    (million tonnes) Capacity
    ACC 11.4
    Guj Ambuja 5.0
    Madras Cements 2.8

    A study to compare the employee productivity across three leading cement companies brings to the fore an interesting picture. At Associated Cement Companies (ACC), while the employees are paid the highest, they are the least productive in terms of output per head. Ditto in case of net profits per employee. At the other extreme is Gujarat Ambuja, which is considered to be one of the most efficient cement companies in Asia. The company's net profit and revenues per employee are the way ahead of its other two competitors. And interestingly, its payout per employee is lower than that at ACC. The net profit margins (NPM) reflect the sharp divergence between the two companies. Madras Cements seems to have effectively controlled its employee costs, but in efficiency levels, the company falls way short of Gujarat Ambuja.

    Another interesting point is that all three companies recorded a rise in turnover between FY97 and FY99 (slowdown in domestic economy). However their profits during the period took a dip, with Madras Cements suffering the most.

      Wages Sales Net Profit NPM
    (Rs 000) FY97 FY99 FY97 FY99 FY97 FY99 FY99
    ACC 109 147 1,669 2,146 52 45 2.1%
    Guj Ambuja 127 143 4,506 5,260 631 613 11.7%
    Madras Cements 116 133 2,458 2,729 470 218 7.8%

    The price to earnings ratio (P/e) reflects the valuations accorded to the company by the stock markets. The better the business, the higher the valuations (of course, sentiments also play a major role). And on this parameter, Gujarat Ambuja once again tops the list – after all it’s one of the most efficient cement companies in Asia. ACC is loss making and hence there is no relevant P/e for the company.

      Stock Performance
      Price P/e
    ACC 145 -
    Guj Ambuja 209 15.7
    Madras Cements 4,007 11.9

    The cement sector is witnessing buoyant times. However as competition picks up in coming years, margins could come under pressure. In such a scenario companies like Gujarat Ambuja will be able to post better returns as compared to their competitors.



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