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Madras Cements: Margins take a pounding

Oct 29, 2001

Madras Cements has reported dismal results for the second quarter ended September 30, 2001. Net profit for 2QFY02 has fallen by 94.1% to Rs 15 m. This was due to a 48% rise in expenses primarily led by higher raw material, power and selling expenses.

(Rs m)2QFY012QFY02Change1HFY011HFY02Change
Sales 1,570 1,855 18.2% 3,013 3,946 31.0%
Other Income 4 15 327.8% 11 15 45.3%
Expenditure 1,032 1,526 47.9% 2,161 2,925 35.3%
Operating Profit (EBDIT) 538 329 -38.8% 852 1,021 19.9%
Operating Profit Margin (%)34.3%17.7% 28.3%25.9% 
Interest 160 187 16.9% 297 399 34.3%
Depreciation 128 143 11.2% 256 322 25.5%
Profit before Tax 253 15 -94.1% 309 316 2.2%
Tax - -   - -  
Profit after Tax/(Loss) 253 15 -94.1% 309 316 2.2%
Net profit margin (%)16.1%0.8% 10.3%8.0% 
No. of Shares (eoy) (m) 1.2 1.2   1.2 1.2  
Diluted number of shares 1.2 1.2   1.2 1.2  
Earnings per share (Rs)* 843.7 49.7   515.2 526.5  
(*annualised)      

While sales growth at 18.2% to Rs 1,855 m for 2QFY02 is impressive, much of this is probably on account of higher cement prices than volumes. Just to put things in perspective, average realisation for the first half of the current financial year had increased sharply by 18.3% to Rs 1,357 per tonne. But the reasons behind the sharp fall in margins is due to a 15% rise in raw material costs and a 35% rise in selling and other expenses. The commissioning of a new plant seems to have resulted in higher expenses during the quarter.

A sharp rise in other income has prevented the company from posting a loss in 2QFY02. However, if one were to consider the 1HFY02 performance, things are not as gloomy as it seems. Sales has increased by 31.0% and operating profits by 19.9%. This was largely on account of a superb 1QFY02 performance where its profits grew by 465% to Rs 252 m

For the first half of the current financial year, both interest and depreciation charges are up, as the company’s new 1 million tonne plant went on stream.

The scrip is currently trading at Rs 4,180 on a P/E multiple of 7.9x the annualised 1HFY02 earnings.

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