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Gujarat Ambuja: Other income to the rescue

Oct 17, 2003

Gujarat Ambuja, the third largest cement producer in the country has registered a lackluster performance for the September quarter. While the topline of the company has remained stagnant, the operating profits of the company have suffered a decline of almost 16%. However, the other income has helped the company to register a bottomline growth of nearly 41%.

(Rs m)1QFY031QFY04Change
Net Sales3,7333,7360.1%
Other Income69146111.7%
Operating Profit (EBDIT)778654-15.9%
Operating Profit Margin (%)20.8%17.5% 
Interest 220195-11.2%
Profit before Tax193179-7.1%
Extraordinary items031-
Profit after Tax/(Loss)12918140.8%
Net profit margin (%)3.4%4.8% 
No. of Shares147.0147.0 
Diluted Earnings per share*3.54.9 
P/E Ratio 47.3 
(* annualised)   

Although, the volumes of the company in the domestic market have remained stagnant, a robust 30% increase in the company’s exports have helped overall volumes to grow by 5%, outpacing the industry growth of 4.5%. However, a 5% drop in realisations has completely offset the volume growth and as a result the topline of the company has remained flat.

As far as the operating performance of the company is concerned, while the company managed to reduce its power costs, the rise in company’s excise duty and the subsequent drop in realisations dragged the operating profit down by almost 16%. However, on account of better management of the interest costs, which saw its interest outgo decline by 11% and a huge rise in its other income, the bottomline of the company registered an increase of 41%.

Cost break-up
Operational expenses 1QFY03 1QFY04 Change
Consumption of raw materials : 221 278 26%
Staff Cost 140 168 20%
Power & Fuel 984 974 -1%
Excise Duty 608 709 17%
Freight & Forwarding 765 779 2%
Other Expenditure 827 884 7%
Total 3,545 3,791 7%

The stock is currently trading at Rs 232, a P/E of 47.3x of its annualized 1QFY04 earnings. Historically, the September quarter results for the cement companies have always lagged behind as compared to the other three quarters on account of monsoons, which slacken the construction activity, thus leading to lower demand. However, post monsoon, the demand is expected to pick up and since the pace of capacity addition has also slowed down, the realisations might see an upward movement. Thus, the two favorable trends, increased demand and better realisations could translate into improved performance from the company in the time to come.

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