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India Cements: Losses escalate

Jul 30, 2002

India Cements, the largest producer of cement in the southern region has reported disappointing results for 1QFY03. The company has reported a net loss for the first quarter of the current year compared to a profit in the comparable period last year. Total revenues of the company have also dropped by 21% on a YoY basis

(Rs m)1QFY021QFY03Change
Net Sales 3,134 2,479 -20.9%
Other Income 8 7 -4.0%
Expenditure 2,251 2,247 -0.2%
Operating Profit (EBDIT) 882 232 -73.8%
Operating Profit Margin (%)28.2%9.3%
Interest 572 576 0.6%
Depreciation 202 203 0.5%
Profit before Tax116-539-
Tax - - -
Profit after Tax/(Loss) 116 (539)-
Net profit margin (%)3.7%-21.8%
No. of Shares 140.0 140.0
Diluted Earnings per share*3.3-15.4
P/E Ratio (1.5)
(* annualised)

The operating expenses of the company have gone down marginally, but the fall in topline has caused a 74% fall in its operating profits. India Cements' operating margins have fallen by nearly 2,000 basis points to nearly 9%. Interest and depreciation expenses have also gone up marginally.

India Cements has been severly hit by the drop in cement realisations in the southern region. Overcapacity coupled with severe competition from the likes of ACC and Gujarat Ambuja have severely affected the topline and bottomline of the company. For the full year FY02, the company had reported a loss of Rs 8 m. If the proceeds from the sale of its stake in Shri Vishnu Cement is disregarded the net lossess are to the tune of Rs 1.26 bn.

The stock is currently trading at Rs 23. In the short term topline of the company is likely to face increasing pressure due to competition from ACC and Gujarat Ambuja, who have set up new capacities to cater to the southern markets. The poor performance of the company is inspite of a 19% growth in the cement dispatches (of industry) to the southern region. This shows the kind of pressure on the company's volumes. On the realisations front the company will face pressure in the short to medium term due to overcapacity situation in the southern region. In the long term the company's performance will depend heavily on whether it is able to develop new markets in other regions of the country, until then its performance on the bourses is also likely to be subdued.

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