Building Concrete Gains In Rebound

The cement sector regained its prominence since the quarter ended March 2001 after a major turnaround in financial performance.

The sector reported an earnings per share (EPS) of Rs 3.26 at the end of the quarter ended March 2001, which was indeed a peak in last consecutive eight quarters. This is in sharp contrast to the EPS of below Re 1 in the five consecutive quarters preceding the March 2001 quarter.

This growth in earnings was backed by a better price-realisation, with the companies making a conscious effort to cut production.

The cartelisation by the major players to control the downward spiral in the prices, as also cost-control measures, offset the lower consumption growth of the commodity during the last two quarters.

A 10-year low production growth of 2.51 per cent for the quarter ended June 2001 reflected in a small 2.34 per cent rise in despatches. While in quarter ended March 2001, the production had been lower by 9.59 per cent reflecting in a 9.2 per cent drop in despatches.

Interestingly, exactly the opposite correlation emerged in earnings, production and despatches growth in quarter ended December 1999. In this quarter, the sector had reported losses despite a double-digit growth in production (11.3 per cent) and despatches (10.96 per cent). A lower price-realisation during the quarter (prices were lower by 5 per cent to 20 per cent) could be one of the major factor for lower earnings for the sector.

But, kicking off the legacy of the past, the sector powered on during the last two quarters, reporting a two-fold increase in earnings.

Grasim Industries' earnings have nearly tripled in quarter ended March 2001 to Rs 15.8 (Rs 5.3).

In the quarter ended June 2001, its EPS was Rs 12.24. The commissioning of a new plant, more than 100 per cent capacity utilisation with a focused approach to cement business helped Grasim to put on a better show. After a 200 per cent rise in the net profit for quarter ended March 2001, the company's net profit growth settled at 89 per cent in quarter ended June 2001.

Larsen & Toubro also reported better realisations in the cement business. After a bad patch with a drop of 85 per cent in the net profit during the quarter ended September 2000, the company's net profit has been growing in the range of 50 per cent to 287 per cent. This has seen its EPS rise to Rs 2.94 for quarter ended June 2001 from Rs 0.76 in June 2000.

ACC's cost-cutting efforts propelled its bottomline. Analysts said as a result of its cost-control measures, the company has been able to reduce the cost by Rs 69 per tonne. A turnaround in its bottomline has seen its EPS to Rs 2.69.

Gujarat Ambuja Cement reported the best bottomline show during the quarter ended June 2001. Its net profit grew by 60 per cent in the quarter on the back of a 7 per cent increase in despatches, and as a result, the company ended the quarter with an EPS of Rs 4.21 from Rs 2.63 in June 2000.