Madras Cement has announced 1QFY03 results and they are disappointing to say the least. The company has reported a 23% drop in topline while profit before taxes have shown a degrowth of 71% on a YoY basis. For 1QFY03 the company has deferred provisioning of taxes till the end of the year and hence PBT shows a like to like comparison.
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Madras Cement's topline performance has been dismal considering that industry dispatches of cement in the first quarter in the southern region grew at 19% on a YoY basis. The company has been hit badly by the fall in realisations, especially in the southern region. Increased sales tax liability on cement costing above Rs 145/ bag in the state of Tamilnadu where the company has significant presence forced the company to reduce its prices, further affecting realisations.
The company has performed well on the operational front. Madras Cement has reduced its operational expenses by 15% by cutting costs across all heads. The reduced costs may also have been the consequence of lower volumes. The company is likely to have faced increased competition from the likes of ACC and Gujarat Ambuja. Both ACC and Gujarat Ambuja have set up capacities to capture market share in the southern region. This may have impacted volumes of the company.
Due to poor realisations, the operating profits of the company have gone down by 40%. Consequently, the operating margins have gone down by 700 basis points. The company has managed to pare down interest costs by a considerable 16%.
The stock is currently trading at Rs 3,978 on a P/E multiple of 14x 1QFY03 annualised earnings. The company is likely to experience increasing pressure on the topline due to low realisations and increased competition from ACC and Gujarat Ambuja. Madras Cement's bottomline will remain depressed in the short term due to poor realisations not with standing various cost cutting measures initiated by the company. The company's near 100% presence in the southern region makes it more suceptible to demand supply mismatches. The oversupply condition is likely to adversely impact the situation further in the short term. In the long term, a lot depends on the company's ability to diversify into new markets and spread the commodity price risks more efficiently.
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