• OUTLOOK ARENA
  • VIEWS ON NEWS
  • JULY 3, 2003

India Cements: Restructuring awaited

India Cements, the troubled south Indian cement producer, has reported another year of disappointing results. The company has reported a net loss of Rs 2 bn on the back of a significant 16% fall in topline. A drastic fall in realisations as well as a considerable rise in interest expenses has taken a toll on both the topline as well as the bottomline of the company in FY03. In fact, the company's losses have been mitigated to a certain extent by the tax writeback. Not accounting for the writeback, India Cements' losses would have been higher at Rs 3 bn.

(Rs m)4QFY024QFY03ChangeFY02FY03Change
Net Sales 2,207 2,065 -6.4% 10,191 8,516 -16.4%
Other Income 1,207 17 -98.6% 1,247 61 -95.1%
Expenditure 2,317 1,946 -16.0% 8,584 8,250 -3.9%
Operating Profit (EBDIT) (109) 119 -209.1% 1,607 266 -83.4%
Operating Profit Margin (%)-5.0%5.8% 15.8%3.1% 
Interest 440 825 87.6% 2,054 2,585 25.8%
Depreciation 278 202 -27.6% 875 814 -7.0%
Profit before Tax379-890-334.5%-76-3,072 
Extraordinary items - -   - -  
Tax - (292)  (68) (1,059) 
Profit after Tax/(Loss)379-598 -8.1-2013.7 
Net profit margin (%)17.2%-28.9% -0.1%-23.6% 
No. of Shares 139 139   139 139  
Diluted Earnings per share*      
P/E Ratio      
(* annualised)      

The company has been severely hit by cement realisations that fell during the early part of FY03. While prices recovered by the latter half of FY03, they were still not strong enough for India Cements to arrest the fall in its topline. By our estimates and from the data given out by the company, realisations seem to have fallen by close to 35%. The company has also not been able to compensate for low prices by increasing volumes. The sales volumes of the company have risen by 3%, which is much lower than the industry average of 9% for FY03. We believe that increased competition by major players like ACC, which has expanded its capacity in the southern region, seems to have eaten into the market share of the company.

Due to the adverse realisations scenario, operating margins of the company have fallen drastically by nearly 1,200 basis points. While the company has indicated that it has increased the proportion of blended cement as well as reduced its logistics costs, poor realisations have completely overshadowed these measures. India Cements also saw a significant rise in interest expenses. This was mainly because, its debt restructuring package effective from January 2003 does not seem to have taken off.

The stock is currently trading at Rs 24. It has found strength in the March quarter, in anticipation of the debt restructuring program announced by the company. However, India Cements is likely to face pressure on its topline going forward. This is due to the fact that there is still a large oversupply in the southern market and competition is slowly eating in to the market share of the company. When most of the other cement majors have managed to improve their position in the latter half of FY03, India Cements failed to show much progress on the sales volume front. This is considering the fact that the demand scenario had improved in the second half of FY03. The stock may continue to stagnate at this level until concrete gains of the restructuring program surface.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407