| It is an axiom that price movements are triggered by markets discounting all known information. Sometimes that makes for strange pushes-and-pulls and there were two unconnected factors in play over the last week so far as the cement stock was concerned. |
| At the global level, the US is threatening to raise domestic interest rates. At the local level, GACL has registered excellent results in a year when the cement industry as a whole has done well. |
| The global factor set off a wave of selling across financial markets. The logic is convoluted but compelling. Global financial markets are dependent on portfolio investments. |
| If US T-Bill yields are hiked, the portfolio money will be pulled out of everywhere else and invested in US government debt. |
| The "local" factor kept GACL from sliding too much although by the same logic, many other Indian shares should also have held their ground. The cement industry has seen a good year with continuing expansion in despatch volumes and GACL is a pack-leader. |
| In the past six months (July-December 2004), GAC has despatched over 7m tonnes, an increase of 16 per cent over July-December 2003. GAC had a total offtake of 10.44m tonnes in the 2003-04 fiscal. |
| Cement has seasonal variations in offtake. But it may be expected that, with an accelerating trend of despatches, this fiscal year will end up being substantially better. |
| The company's public statements suggest it expects the second half to be good on the basis that activity picked up sharply after Diwali. Cement prices have seen steady hikes through the current financial year "" the latest price hike in January 2005 translated to over 20 per cent per 50 kg bag. |
| In financial terms, consolidated sales volumes grew over 50 per cent in GACL's first quarter, which was July-September 2004-05 because GACL has a June 30 year-ending. Consolidated net profits for GACL and its group company Ambuja Cement Eastern Ltd (ACEL) rose to Rs 100 crore, a massive jump from the Rs 17 crore that they registered in the previous year. |
| There are overall signs that industry consolidation is paying off in terms of better margins. Mergers and takeovers mean a few big players have cornered the cement market. |
| There are no major expansions in the pipeline. Demand is steady. |
| Other companies such as ACC and Grasim also saw offtake expansion and delivered good results. FIIs are reportedly overweight on the entire sector and all cement shares have shown exceptional returns. |
| When it comes to GAC's track record, the stock has a CARG of around 25 per cent return to shareholders over the last decade. That's impressive. It's also seen as an innovator, both in terms of transportation of cement by sea as well as in terms of seeking exports. At the current price of Rs 416, GACL trades at a price-earning discount of between 15-18 to its expected 2004-05 EPS |
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