Madras Cements, one of the largest cement producers in the southern region, has announced disappointing 2QFY03 results. The company reported a 15% fall in topline while its net profit declined by a considerable 27%. However, a 34% rise in other income has pared the fall in net profits.
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Fall in topline is most likely the consequence of further weakness in realisations and increased competition from Gujarat Ambuja and ACC. Volumes on the other hand have been rising in the past few months mainly on account of housing and road related infrastructure activities. Poor monsoons in the country have also led to higher than usual consumption of cement in the country during this period.
The company has managed to improve its operating margins by 170 basis points in the September quarter. Madras Cements, which was one of the most efficient cement manfacturers in the country with operating margins of nearly 28% in FY01, has seen these margins fall to 26% in the June quarter 2002. Though the company has improved its margins in September quarter on a YoY basis, they are still only 19%. Going forward, margins are likely to remain under pressure in the short term due to pressure on realisations.
Madras Cements has managed to pare down its interest costs by 15% while its depreciation expenses have gone up by 11%. Going forward further rationalisation of expenses can be expected but the bottomline is likely to witness pressure till the realisations improve.
At the current market price of Rs 3,850 the stock is trading at 106x its annualised 2QFY03 earnings. The company's inability to expand its market has severly impacted its performance. Improvement in cement prices are likely to improve valuation but a bigger trigger could be sell out to a larger domestic or international player.
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