ACC: Concrete gains

ACC is well positioned to take advantage of the sector upturn

Cement companies have reported significantly better results for the fourth quarter (Q4) ended March 2004 and ACC has been no exception ""- net profit has grown 80 per cent to Rs 105.9 crore.

The profit growth has, however, been aided by a 61 per cent rise in other income to Rs 77.11 crore during the quarter. Hence, the operating profit margin growth was slightly lower than the net profit growth""- overall operating profit grew 74 per cent to Rs 135.42 crore. And operating profit margins jumped 356 basis points to 14.06 per cent in the March quarter.

ACC like other cement companies has profited from a revival in demand in the first quarter of calendar 2004 ""- total cement sales of the company jumped 11 per cent during the quarter to 40.40 lakh tonne.

Analysts point out that average price realisations for the company have risen approximately 15-18 per cent year-on-year to reach approximately Rs 160 per 50 kg bag in the fourth quarter.

As a result, profitability of the cement division jumped 89 per cent to Rs 115.04 crore during the quarter, while operating profit margins rose 424 basis points to 13.37 per cent.

An upturn was also evident in the company's other divisions such as refractories, following a surge in demand from the industrial sector. As a result, segment profitability jumped 76 per cent to Rs 6.93 crore in Q4. Also this segment's operating profit margins rose 295 basis points to 13.5 per cent in the March quarter.

The company is well positioned to take advantage of the continued upturn in the sector ""- the company had recently issued foreign currency convertible bonds and global depository receipts aggregating $100 million to fund the acquisition of Bargarh Cement (formerly Idcol Cement), modernisation of its Chaibasa plant and other capital expenditure.

This fits well into the company's strategy of expanding into the more profitable markets such as eastern India as well as improving supply chain efficiencies for its production facilities across the country. Also growth in the east is much higher than other markets as demand is growing there at approximately 8 per cent compared with an all-India average of around 5.2 per cent.

Money market

What has been the impact of market stabilisation bonds and restructured liquidity adjustment facility (LAF)? Not much, going by the behaviour of the debt market.

The first tranche of the new market stabilisation instruments made its debut on April 6 and successive issues till date have mopped up around Rs 14,000 crore. These have been a mixture of treasury bill and dated securities but for shorter tenure of 1-2 years.

The first few days after the introduction of MSS and modified LAF saw decreasing volumes in the repos, whose tenure has been extended from one day to seven days while keeping the rates at 4.5 per cent.

After the first set of seven day repos got over and each subsequent repo was offset by each of the earlier seven days repos maturing back into the system, liquidity surged back.

Naturally, the quantities parked in repos have also increased, and the outstanding amounts held under repo with the RBI is at Rs 70,000-80,000 crore.

Surplus liquidity in the system is also evident from the average call rates in the interbank market ruling intra-day even at 3 per cent.

Moreover, players who do not have access to the call market lend in the collateralised lending and borrowing obligation ( CBLO) even at 2 per cent. Even for repos of 7 days, repos done with parties other than RBI are fetching 4-4.2 per cent.

The question is "" why is the central bank not coming out with large market stabilisation issues to suck up abundant liquidity?

Either it has estimated that inflows will dry down soon or it is of the view that intervention is actually an expensive way of monetary management.

In fact, with the results of the exit poll featuring a hung Parliament, forex inflows have slowed down considerably.

For the time being, subdued forex inflows and the Reserve Bank's continuous efforts to increase avenues of foreign exchange expenditure overseas appear to have provided the RBI with a break from the headache of managing surplus liquidity.

But the revamped repo and the restructured LAF will be incomplete without the standing deposit facility, which can only be brought about through an amendment in the RBI Act by the new Parliament.

With contributions from Amriteshwar Mathur and Anindita Dey