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Gujarat Ambuja: On a high

Jul 31, 2003

Gujarat Ambuja, one of the leading producers of cement in the country has posted a 25% growth in topline in the FY03. The bottomline of the company grew by a strong 19 % percent. This is at a time when most cement companies reported poor results for FY03. However one must also acknowledge the fact that since the June quarter realisations have started improving and this has helped the company post relatively better results than its peers. The strong growth in the bottomline was mainly assisted by a 68% increase in the other income and also a 30% reduction in the tax incidence.

(Rs m)4QFY024QFY03ChangeFY02FY03Change
Net Sales3,5764,70031.4%13,84117,34725.3%
Other Income30111271.3%21636267.9%
Expenditure2,5103,38334.8%9,39912,58233.9%
Operating Profit (EBDIT)1,0661,31823.6%4,4424,7657.3%
Operating Profit Margin (%)29.8%28.0%32.1%27.5%
Interest 240208-13.5%966879-9.0%
Depreciation36841211.8%1,3781,71624.6%
Profit before Tax48881065.9%2,3142,5329.4%
Extraordinary items0000
Tax8630-65.5%448315-29.8%
Profit after Tax/(Loss)40278094.1%1,8662,21718.8%
Net profit margin (%)11.2%16.6%13.5%12.8%
No. of Shares155.1155.2155.1155.2
Diluted Earnings per share*10.420.112.014.3
P/E Ratio15.9
(* annualised)

The company also had an excellent run in the fourth quarter of FY03. While the topline of the company grew by 31% on a YoY basis, net profits grew by a stupendous 92% over the same period in the previous year. A strong 271% jump in the other income and a reduction in interest expenses were largely responsible for the improved showing in the fourth quarter.

As far as the performance for the full year is concerned, the growth in volumes continued to impress. The overall growth in volumes stood at 37%, with the domestic market growing at 35% and exports at 46%. Had it not been for the lower sales realizations, the topline would have looked much better. Like all its peers, the company too suffered as a result of lower price realizations. The realizations dropped by 9% in the domestic market and increased marginally by 1% in the exports market.

Although the operating profit of the company increased by 10%, the lower sales realizations put pressure on the operating margins of the company. Despite the sales realizations dropping by 8%, operating margin drop was restricted to 4%. This is in contrast to other cement majors who saw their margins erode drastically in FY03. This was achieved through higher productivity and lower power and fuel costs.

The other income of the company increased substantially by 68%, which helped the company to improve its bottomline performance. The company also brought its interest costs down by 9% on account of realignment of its high cost debt and efficient management of funds. The depreciation continued to remain high on account of its new Chandrapur plant. Net profits of the company increased by 19% assisted not only by the robust increase in the topline but also by the growth in other income and reduced interest incidence.

The stock is trading at Rs 227, a P/E of 15.9x, its FY03 earnings. Gujarat Ambuja has consistently outperformed the industry both in terms of volumes and realisations over the years. Going forward considering the capability of the management, there is enough reason to believe that the performance will be maintained. The stock will hence continue to remain in the investor radar going forward.

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