ACC, which posted a sharp turnaround in the latter half of FY01, has once again posted a sharp improvement in performance in 1QFY02. The company has benefited from better operating margins (due to better realisations and greater control on costs) and a decline in interest expenditure. The company has posted a net profit of Rs 440 m after factoring in a one time loss of Rs 30 m on the sale of its stake in Floatglass India.
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The company, which posted a loss in FY00, has come a long way in terms of cost control. Indeed, had it not been for the 'co-operation' in the cement sector, cement prices would have continued to langusih at very low levels. This would have taken its toll on profitability. However, this development (i.e. collusive tactics of cement companies) is also a concern in the sense that as and when the cartel does break up, cement companies, including ACC, will be hit badly.
The sharp improvement in profitability can be largely attributed to the jump in operating margins. To put this improvement in perspective, it needs to be pointed out that the company posted a dismal OPM of 7.3% in FY00. In 1QFY02, the OPM was put at 17.0%. This was the lowest among the larger cement companies. The leaders in the industry, Gujarat Ambuja (which now is the largest shareholder in ACC) and Madras Cements, earn margins in excess of 30%.
The impact of what was termed as the Gujarat Ambuja effect already seems to be evident.
The company has recently commissioned its 2.6 million tonne cement plant in South India. This will give it access to the lucrative southern market.
The stock currently trades at Rs 146, implying a price to earnings multiple of 14.2x based on annualised 1Q earnings.
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