ACC continues to record notable improvement in operating performance, successfully leveraging its strategic alliance with Gujarat Ambuja. The company has finally ended the year with a 9% topline growth and 113% growth in profit before tax. The higher growth in profits is largely a result of better control on operating costs and lower interest expenditure. However, both sales and operating margins are slightly lower than our expectations.
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Topline growth of the company is in line with the industry growth rate of 9.6% during the year as against a negative growth of 0.60% recorded by the company in FY01.Cement dispatches for the company grew by more than 15% during the year. However, on account of lower realisations, net sales growth was 9%. Nevertheless, increased focus towards high demand markets in the northern and the eastern regions of the country has ensured comparatively higher realisations for the company.
Cement industry growth is expected to be maintained at around 8-10% for FY03 on the back of strong growth in the areas of housing and infrastructure. Considering that no new capacity are under way, the current overhang of supply should wither out considering that demand would grow at a robust rate. The company continues to focus on further reduction of costs through efficiency and increase in throughput.
At the current market price of Rs 155, the stock is trading at 20x FY02 earnings and 0.9x market cap to sales ratio. ACC still has lot of room for improving its operating efficiency and strengthen its position in the cement industry. The company's operating margins have further scope for expansion as they are nowhere near the industry standards. GACL and Madras Cement have operating margins in the range of 28-32%. And as it achieves each milestone, valuations are likely to move in tandem. The demand scenario in the country also looks encouraging. However, in the short term valuations of the company would continue to be clouded by concerns over spurt in energy prices.
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