X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Cement: The manpower perspective! - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Cement: The manpower perspective!

Dec 6, 2006

India is a developing country and so there are good growth opportunities. India's GDP is expected to grow at 8% annually and so the cement sector, being a core infrastructure sector, is expected to grow at 8% to 10% annually. In view of this, global cement majors have been eyeing the Indian cement market for some time now and the major players in the country are in the process of forming alliances in order to corner maximum market shares. Large size and better operational efficiency have emerged as the key success factors in today's highly competitive environment. If one compares total operating costs per tonne of cement produced, ACC and Gujarat Ambuja (GACL) are almost neck and neck, but GACL EBITDA margins are substantially higher than ACC's. This is on account of GACL's better realisations, owing to its strong presence in western region and greater brand recall. Madras cements though being in a region of high demand supply mismatch also enjoys higher EBITDA margins compared to ACC, a fact that could be attributed to its continued improvements on the cost savings front. So for ACC to expand its margins, it will have to curtail costs as realisations, which are vastly superior to its peers will be hard to come by on account of the commodity nature of the business. While ACC is better off in terms of geographical de-risking, its old plants and higher employee costs does present it in poor light when compared to peers.

From the table below, it is clear that ACC has the highest employee cost per tonne, while GACL has the lowest. Madras cements have been able to reduce employee cost per tonne and now is almost in line with GACL.

Employee cost per tonne of production
Company FY04 FY05 FY06 CAGR-FY04 to FY06 (%)
ACC 139 140 142* 1.1%
Gujarat Ambuja** 82 104 96 8.2%
Madras Cements 100 106 98 -1.0%
* 9mths ended CY05

Employee expenditure is high in case of ACC due to high number of employees. This can be gauged by the fact that number of employees per tonne of production capacity is highest for ACC, while it is lowest for GACL. Due to low employee numbers, GACL's total expenditure on employees is low but has increased at CAGR of 8.2% between FY03 and FY05, the highest among the three. Though employee cost per tonne basis has increased, its number of employees per tonne of production of capacity has declined at CAGR of 10.8%, indicating an increase in productivity. Higher employee costs can be attributed to the fact that the company may have revised salaries in line with inflation. Madras Cement has also been able to extract more out of its employees but at the same time has also been able to reduce employee expenditure.

Number of employess per tonne of production
Company FY04 FY05 FY06 CAGR-FY04 to FY06 (%)
ACC 622 587 705* 6.5%
Gujarat Ambuja** 200 203 165 -10.8%
Madras Cements 451 431 359 -9.2%
* 9mths ended CY05

We believe economies of scale also play an important role in the cost structure of cement companies. To put things in perspective, in FY03 GACL operated at 109%, the highest in past 3 years and during this time, its employee cost per tonne was the least.

Capacity Utilisation
Company FY04 FY05 FY06
ACC 90.7% 91.2% 71.0%*
Gujarat Ambuja** 109.3% 80.6% 96.3%
Madras Cements 61.6% 63.5% 78.3%
* 9mths ended CY05

Further evidence of economies of scale could be obtained from the fact that though the number of employees is low in case of Madras Cements, the expenditure on employees was on a higher side in FY03 and have come down as capacity utilization levels went up.

Thus it is clear that for a commodity player, control on employee costs along with scale of operation matters. In the long run, the efficient and cost effective player survives.

**Gujarat Ambuja has changed its accounting year from financial to calendar year. The data mentioned in the above tables pertains to FY03, FY04 and FY05.


Equitymaster requests your view! Post a comment on "Cement: The manpower perspective!". Click here!

  

More Views on News

RAIN INDUSTRIES 2017-18 Annual Report Analysis (Annual Result Update)

Apr 16, 2019 | Updated on Apr 16, 2019

Here's an analysis of the annual report of RAIN INDUSTRIES for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of RAIN INDUSTRIES. Also includes updates on the valuation of RAIN INDUSTRIES.

AMBUJA CEMENT 2017-18 Annual Report Analysis (Annual Result Update)

Apr 8, 2019 | Updated on Apr 8, 2019

Here's an analysis of the annual report of AMBUJA CEMENT for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of AMBUJA CEMENT. Also includes updates on the valuation of AMBUJA CEMENT.

RAIN INDUSTRIES Announces Quarterly Results (3QFY19); Net Profit Down 140.5% (Quarterly Result Update)

Mar 5, 2019 | Updated on Mar 5, 2019

For the quarter ended December 2018, RAIN INDUSTRIES has posted a net profit of Rs 1 bn (down 140.5% YoY). Sales on the other hand came in at Rs 34 bn (up 9.5% YoY). Read on for a complete analysis of RAIN INDUSTRIES's quarterly results.

CCL INTERNATIONAL Announces Quarterly Results (3QFY19); Net Profit Down 75.9% (Quarterly Result Update)

Feb 22, 2019 | Updated on Feb 22, 2019

For the quarter ended December 2018, CCL INTERNATIONAL has posted a net profit of Rs 1 m (down 75.9% YoY). Sales on the other hand came in at Rs 97 m (down 5.1% YoY). Read on for a complete analysis of CCL INTERNATIONAL's quarterly results.

UltraTech: Ramping Up Efficiencies for the Acquired Plants (Quarterly Results Update - Detailed)

Nov 11, 2017

Higher depreciation and working capital at the acquired plants impacted the company's profitability.

More Views on News

Most Popular

Stocks that Could Be Out of Reach Post Elections(The 5 Minute Wrapup)

Apr 9, 2019

It's a matter of time before the stocks catch the fancy of the markets and big investors.

3 Indian Stocks with Amazon-Like Potential(Profit Hunter)

Apr 10, 2019

We have identified 3 stocks with huge wealth building potential which meet our 'Click of a Button' criteria.

This Company is Making a Big Comeback and You Can Now Profit from Its Example(The 5 Minute Wrapup)

Apr 10, 2019

How Dell got its mojo back.

This is Why the Stock of Jubilant FoodWorks Went Up 1,160%(The 5 Minute Wrapup)

Apr 12, 2019

This critical business strategy has enabled companies to scale their operations faster.

Pocketing Massive Gains with HDFC And HDFC Bank(Profit Hunter)

Apr 12, 2019

Here's how one could have generated gains of Rs 59,250 in 10 days by trading HDFC and HDFC Bank with a capital of Rs 4 lakh.

More

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms

COMPARE COMPANY

MARKET STATS