ACC, one of the largest cement producers in the country, has announced its March quarter and FY03 results. Due to a strong growth in other income the company has reported a 12% rise in net profit, while a marginally degrowth in topline for 4QFY03 on a YoY basis. For the full year FY03 net profits have however shown a decline of 30% on a topline growth of 2%. If not for other income the fall in bottomline would have been more severe.
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For FY03 the company' topline growth has been lackluster mainly due to fall in realisations. While volumes have been robust at 15%, realisations have fallen by 10% in FY03. Weakness in volumes has continued throughout the quarter and in the March quarter also the weakness is seen. Topline growth in this quarter has been negative, indicating that the volume growth too may have slowed down a bit. To put things in perspective while topline has grown by 7% in the March quarter, for FY03 this number stood at 15% thus indicating the slowdown.
While for FY03 fall in operating margins have been severe (fall of nearly basis points), in the March quarter margins have actually held ground due to control over costs as well as falling sales. Operating margins of cement companies have suffered in FY03 mainly due to falling cement prices. Though the company has fallen back on margins it has in a way tried to make this up by reducing its interest expenses. Lower interest rates have enabled almost all cement companies to pare down their interest costs by restructuring existing high cost debt at lower rates.
Improvement in the net profits for the March quarter was mainly on account of considerable growth in other income. This was mainly due to the proceeds from the sale of its investments. For FY03 however net profits have fallen by nearly 30% mainly due to fall in operating margins.
The stock is trading at Rs 131 at a P/E multiple of 21x its annual FY03 earnings. Despite low cement prices, healthy volumes have saved the day for the company. While there are no major cement capacities being planned in FY04, the new 2.5 m tonne cement plant by Sanghi Cement will adversely impact cement prices in the western region in the short term. Cement stocks including ACC may continue to remain lacklustre till cement prices show a sustainable improvement. In the long term, the cement industry prospects look good considering the healthy housing as well as road infrastructure demand.
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