Madras Cement: Faces heat in south - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Madras Cement: Faces heat in south

Jun 10, 2002

Madras Cement has announced poor FY02 results. Its net profit for the period has declined by a sharp 45% YoY. Though the topline of the company has shown a healthy 14% growth, Madras Cement's inability to control operating costs, increased depreciation and interest expenses hit profitability. The company seems to have recovered slightly in the fourth quarter as net profits were down by just over 4%. This recovery has been due to higher dispatches in the last quarter.

(Rs m)4QFY014QFY02ChangeFY01FY02Change
Net Sales 1,714 1,603 -6.5% 6,183 7,063 14.2%
Other Income 12 8 -35.0% 25 31 23.3%
Expenditure 1,237 1,191 -3.7% 4,426 5,291 19.5%
Operating Profit (EBDIT) 477 411 -13.8% 1,757 1,773 0.9%
Operating Profit Margin (%)27.8%25.7% 28.4%25.1% 
Interest 185 181 -2.1% 654 775 18.5%
Depreciation 127 148 16.5% 527 610 15.6%
Profit before Tax17790-49.3%600419-30.3%
Extraordinary items00 00-
Tax (116) (32)-72.8% (116) (150)-
Profit after Tax/(Loss) 61 58 -4.4% 484 269 -44.5%
Net profit margin (%)3.6%3.6% 7.8%3.8% 
No. of Shares 1.2 1.2   1.2 1.2  
Diluted Earnings per share*203.3194.3 403.3223.8 
P/E Ratio  21.7    18.9  
(* annualised)      

The topline growth seems to have been achieved due to the heavy cement demand in the last quarter of FY02. The topline growth was essentially volume driven as the realisations remained depressed through out the year. Madras Cement has got maximum exposure in the south, mainly in Kerala and Tamilnadu. In the south, demand has come mainly from the housing sector as the infrastructure projects are near completion. A slight recovery in cement prices in the last quarter has also aided the growth in topline. A considerably lower tax outgo helped the company stem decline in fourth quarter net profit.

For the whole year the interest expenses of the company increased by nearly 19%. This increase could be attributed to increased debt to finance the capacity additions of the company.The company set up a mini-cement plant in Karnataka and took up debottlenecking exercises. Consequently, Madras Cement increased its capacity by 0.9 m tonnes to 6.1 m tonnes in FY02. Depreciation provisioning also increased on account of the increase in capacity.

The company's operating expenses went up considerably. The Tamilnadu government announced a higher sales tax (24%) on cement sold above the Rs 145 price level. This increased sales tax expenditure was partly responsible for the hike in costs. However, a bulk of the cost increases came from higher raw material, power and fuel and transportation costs. A 20% growth in dispatches has led to high raw material and fuel expenses. While the dispatches are high the topline has not grown proportionately due to depressed prices in the southern states. There exists an oversupply condition in these states as majors like ACC and Gujarat Ambuja have set up large capacities in the western and the southern region which has lead to a glut of cement supply in these regions.

Operating Expenses FY01 FY02 % change
Raw material 801 1,029 28.5%
Power & Fuel 1,435 1,646 14.7%
Staff Costs 328 359 9.3%
Transportation & Handling 700 994 42.0%
Other Exp 1,163 1,262 8.5%
Total cost 4,426 5,290 19.5%

The stock is currently trading at Rs 4,225, a P/E mutiple of 19x FY02 earnings. The company is likely to face stiff competition from the heavyweights like ACC and Gujarat Ambuja, who have set up capacities in south. Owing to its south based presence, it is not easy for the company to market its brand in the western and northern markets, as the costs would be prohibitive. In the short term, the demand is likely to be robust albiet, with pressure on realisations due to a glut of supply in the region. In the long term, a lot will depend on the management's strategy to enter into new markets as the southern markets are increasingly getting saturated with supply. Market reach is likely to be the biggest stumbling block for the company.

Equitymaster requests your view! Post a comment on "Madras Cement: Faces heat in south ". Click here!

  

More Views on News

Ramco Cements Q4 Profit Up 51.1% on Higher Sales & Better Cost Control (Views On News)

May 25, 2021

Here's our view on Ramco Cements latest quarterly results.

Nuvoco Vistas Makes a Lackluster Debut. Stock Lists at 17% Discount (Views On News)

Aug 23, 2021

Nuvoco Vistas witnessed a tepid listing on the bourses despite strong outlook for the cement sector.

Shree Cement Shares Tanks on Poor Operating Performance in the June Quarter (Views On News)

Aug 10, 2021

Shree Cement lags peers in volume growth.

Key Points to Know Before Applying to Nuvoco Vistas' Public Issue (Views On News)

Aug 7, 2021

Nuvoco Vistas is one of the leading ready-mix concrete manufacturers in India. The issue will open for subscription on 9th August.

UltraTech Delivers Strong Results. Will the Stock Continue to Rise? (Views On News)

Jul 23, 2021

A key highlight for the June quarter was the company paying long-term loans amounting to Rs 50 bn in advance.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

Don't Sell these Stocks if the Market Falls (Profit Hunter)

Nov 17, 2021

These are the 3 types of stocks that you should not sell in a market crash.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

THE RAMCO CEMENTS SHARE PRICE


Nov 30, 2021 (Close)

TRACK THE RAMCO CEMENTS

  • Track your investment in THE RAMCO CEMENTS with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MORE ON THE RAMCO CEMENTS

THE RAMCO CEMENTS - LAFARGE COMPARISON

COMPARE THE RAMCO CEMENTS WITH

MARKET STATS