So Far, So Good

Volume growth in cement has been relatively healthy, with the industry growing at a rate of around 9 per cent between April-December 1998. Gujarat Ambuja has, in the six months ended December 1997, sold 22.94 lakh tonnes of cement, which is 39 per cent higher over the corresponding period last year. In value terms, sales rose by 35 per cent to Rs 524.28 crore in the first half.

The volume surge mitigated to some extent the impact of rising input costs like power, coal and freight, as operating margins fell from 31.57 per cent to 30.36 per cent. Lower price realisations prevented it from capitalising on the addition to capacity. Other income in the first half is higher at Rs 10.8 crore compared to Rs 4.9 crore in the previous year which has partly helped profit growth. Analysts add that operating margins would have otherwise fallen by about 2 per cent.

 

The addition of capacity which partly contributed to volume growth also resulted in a hike in depreciation and interest burden for the period. While depreciation increased from Rs 35.6 crore to Rs 50.36 crore, the interest burden rose from Rs 34.19 crore to Rs 49.57 crore. The drop in corporate tax rates resulted in its tax burden falling to Rs 32.5 crore from Rs 40 crore in the corresponding period last year.

After adjusting for these, the net profit rose by 14 per cent to Rs 55.98 crore. Analysts are looking at a 3 per cent earnings growth for the full year.

The second half will see L&T's incremental capacity coming up in Gujarat. Though this may not result in a further weakening of prices, analysts do not expect prices to strengthen in the second half.

They expect demand growth to also lower in this period and margins may come under pressure as a result.