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Gujarat Ambuja: Efficiency pays - Views on News from Equitymaster
 
 
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  • Aug 5, 1999

    Gujarat Ambuja: Efficiency pays

    Gujarat Ambuja Cements Ltd. (GACL) has posted sales of Rs 12.5 bn (up 10.5% YoY) and a net profit of Rs 1.5 bn (up 15.3% YoY) for the financial year ended 30th June 1999. The company has also decided to hike production capacity by 20 - 25% per annum, thereby doubling production within the next 4-5 years.

    GACL (FY98 Gross Sales Rs 11.5 bn) is the largest manufacturer of cement in Gujarat and Punjab. It has a total capacity of 5 mn tonnes per annum spread over 4 manufacturing units. It is India's most efficient cement manufacturer due to high degree of mechanisation in its products and mining activities. It has controlled freight costs by to moving bulk of its production through the sea route.

    There are distinct signs of a pick up in the demand and prices of cement in the first quarter of the current financial year. Although, the first quarter results of many cement companies have yet to reflect that, the trend for the cement industry is now clearer.

    GACL has posted a decrease in EBITDA margins (earnings before interest, tax, depreciation and amortizations) to 30.6% from 31.2% in the previous year. This is primarily due to the fact that the recovery in prices and sales happened only in the last quarter of the financial year. Another factor that has contributed to the fall in EBITDA margins is that while sales rose 10.5% there was 21.5% jump in excise duties. Overall, the company was able to improve net margins to 12.1% from 11.6%. This was mainly due to overall cost management, stagnant interest costs and nil tax (FY98 Rs 50 mn).

    GACL has drawn up plans to step up production by 20-25% per annum. However, the management has stated that it would not sacrifice its profitability in order step up capacity. This could indicate, that it would be reluctant to fund expansions by taking on too much debt, which would lead to higher interest costs.

    Market View:
    The fact that GACL is India's most efficient producer of cement has led the analyst to rate the stock as a 'BUY'. The management quality of the company is considered to be another factor in favour of the company.

     

     

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