Cement cracks Gujarat Ambuja Cements' dismal showing in the quarter ended September 2000 reflects the Indian cement industry's woes in general, bar southern region. Ironically, in an economy fearing to slow down, additional capacity is being used up even as cement prices remain subdued. GACL'results bear this fact out rather markedly. The sales income improved marginally by 3.3 per cent to Rs 290 crore. Gujarat alone accounts for approximately 30 per cent of the total market of the company. This is precisely why the company has been badly buffeted by the drought conditions in the state.Yet volumes have registered a better growth rate of 8.3 per cent than the industry's 3.6 per cent in the first half of the current fiscal. The company could sell 1.3 million tonnes (mt) cement and clinker as against 1.2 mt in the same period of the previous year.
Major cost components such as power & fuel and freight have gone up owing to spiralling crude oil prices. The most baffling fact is the increasing capacity addition in the industry even as the price realisations show no improvement. Then the only option for the company was to remain lean on cost. That is exactly what it has sought to do to, avoid pressure on margins.
The company has trimmed power & fuel and freight costs substantially from 61 per cent to 46 per cent of total expenditure in the quarter under review. Outwardly, this may look impressive. But a closer look shows that a bulk of the cost was absorbed in huge stock of clinker as on June 30, 2000, since 75 per cent of fuel cost is incurred upto the clinker stage. There was no tab on total expenditure, which was up 11.1 per cent to Rs 205.40 crore.
Operating profit margin slimmed by almost five percentage points to 29.2 per cent. Though operational profits fell 10 per cent to Rs 84.86 crore, it was the interest cost that put a downward pressure on the bottomline. Borrowings to the tune of Rs 1,200 crore were made to finance the acquisition of stakes in ACC and DLF cement, kicking up finance cost by as much as 50 per cent to Rs 32.22 crore. As a result, net profit halved to Rs 25.06 cr from Rs 50.05 crore.
The outlook for the second quarter also remains bleak. Raw material cost per tonne is likely to go up by Rs 8 as the royalty for the limestone quarry has been raised with effect from September 19, 2000. Wage cost will increase as per the new wage settlement, which is substantially higher than the earlier one. These problems compound the present high fuel and freight cost.
Manish JoshiCorrection: The Index of 16th October 2000 carried an analysis on Ranbaxy results relating to the third quarter of the last accounting year owing to an inadvertent technical error. The error is regretted.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.