Gujarat Ambuja: Trips on new plant - Views on News from Equitymaster

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Gujarat Ambuja: Trips on new plant

Apr 22, 2002

Gujarat Ambuja has posted a 11% rise in sales for the third quarter ended March 31, 2002 to Rs 3,772 m. However, operating margins have declined sharply during the same period. But this is primarily on account of commissioning of its new plant, which has resulted in higher raw material costs.

(Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
Net sales 3,409 3,772 10.7% 8,907 10,266 15.3%
Other Income 49 46 -7.1% 107 186 73.9%
Expenditure 2,138 2,623 22.7% 5,765 6,895 19.6%
Operating Profit (EBDIT) 1,271 1,149 -9.6% 3,141 3,371 7.3%
Operating Profit Margin (%) 37.3% 30.5%   35.3% 32.8%  
Interest 320 218 -31.7% 1,032 726 -29.6%
Depreciation 344 337 -1.9% 983 1,010 2.7%
Profit before Tax 657 639 -2.8% 1,233 1,820 47.6%
Tax - 95   - 173  
Profit after Tax/(Loss) 657 544 -17.2% 1,233 1,648 33.6%
Net profit margin (%) 19.3% 14.4%   13.8% 16.1%  
No. of Shares (m) 147.2 147.2   147.2 147.2  
Diluted Earnings per share* 17.9 14.8   11.2 14.9  
P/E Ratio (x)   13.5     13.4  

The operating expenses schedule below clearly reflects the impact of setting up the new plant. The construction work on the new cement plant at Chandrapur, Maharashtra has been completed and the plant is under trial operations. It is expected to commence commercial production soon. But the company has managed to keep other costs intact as a result of which operating profits has fallen only by 10%. Interest and depreciation costs also have declined.

The new plant effect…
(Rs m) 3QFY01 3QFY02 Change
Raw material 124 234 89.1%
% of sales 3.6% 6.2%  
Staff costs 123 137 10.9%
% of sales 3.6% 3.6%  
Power & fuel 795 864 8.8%
% of sales 23.3% 22.9%  
Freight and forwarding 534 584 9.5%
% of sales 15.7% 15.5%  
Other expenditure 657 730 11.1%
% of sales 19.3% 19.4%  
Total 2,233 2,550 14.2%

Turnover growth for the quarter ended March '02, has declined from 18% in 1HFY02. This along with the sharp slide in margins has led to the drop in operating profits. Going forward, as per the company, cement demand to likely to grow in the region of 8% p.a. The company has been restructuring its finance expenditure to lower its interest costs, which have been sliding over the past three quarters.

At Rs 200 the scrip is trading on a multiple of 13.5x 9mFY02 annualised earnings. The buoyancy in transportation infrastructure and housing industry has led to the boom in cement dermand. The company is likely to commence commercial production in 4QFY02 at Chandrapur, Maharashtra, which is likely to reflect in sales of the company. However, realisations in the western region could come under pressure. The stock closed lower today, which could indicate that markets were not too impressed with the results.


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