Gujarat Ambuja: Consolidating locally

The deal is unlikely to make any difference to Gujarat Ambuja investors

Holcim's acquisition of 14.8 per cent stake in Gujarat Ambuja Cements (GACL) is not expected to make much difference to non-promoter shareholders in the short term, though rising valuations of cement capacities indicate that the outlook for the cement sector has become brighter for the medium term.

Holcim, via its subsidiary, will acquire 14.8 per cent stake from GACL's promoters for about Rs 2,100 crore, which includes a non-compete value of Rs 15 per share. On excluding this non-compete value, GACL's enterprise value works out to $185 a tonne, said analysts.

A year ago, Holcim had invested in ACC via Ambuja Cement India (ACIL) at a valuation of about $107 a tonne. With an improvement in the cement sector, ACC's enterprise value has gone up to about $135 a tonne at present.

GACL's higher valuation compared with ACC is attributed to the better operational efficiencies of GACL's cement plants. At the end of December 2005, the holding company ACIL had 33.58 per cent stake in ACC.

In ACIL, Holcim has 67 per cent stake, while GACL owns 33 per cent. Holcim's latest purchase will not change the ownership structure in ACIL.

Consolidation, once again, seems inevitable in the cement industry. Currently, the Aditya Birla group companies Grasim and UltraTech control almost 29 million tonne, while ACC and GACL control 18.28 million tonne and 13.3 million tonne, respectively. The total industry size at the end of FY05 was estimated at about 151 million tonne.

For the December 2005 quarter, GACL reported 31 per cent growth in its consolidated operating profit to Rs 205.97 crore, though the results are not strictly comparable with the December 2004 quarter, as ACIL has ceased to be a subsidiary.

Nevertheless, the company's operating profit margin expanded by 443 basis points y-o-y to 25.82 per cent in the last quarter. GACL benefited from better price realisations and volume growth during the December 2005 quarter.

Holcim has also made an open offer for an additional 20 per cent stake in GACL at Rs 90 per share. With the GACL stock closing at Rs 90.45 on Monday, there are unlikely to be many takers.

SBI: Higher interest outgo

State Bank of India's results for the December 2005 quarter have been disappointing.

However, given the repatriation of IMD during this period, some impact on profits was expected. With the net profit up just 1.4 per cent y-o-y at Rs 1,115 crore, the stock lost about 3.2 per cent on Monday.

SBI's profits have been impacted by higher borrowing costs, while the interest income in the quarter grew at 19 per cent y-o-y, the interest paid-out went up 22 per cent on the same basis.

In particular, the interest paid on deposits rose 18 per cent though the cost of deposits actually came down to 4.52 per cent in the nine months ended December 2005, from 4.74 per cent a year ago.

Other borrowings doubled to Rs 369 crore. As a result, the net interest income grew at just 15.3 per cent y-o-y, slower than the 24 per cent y-o-y rise in the first half of FY06.

SBI's net interest margin (NIM) improved to 3.5 per cent in the nine months, against 3.44 per cent in H1. The other income saw a sharp fall of 18 per cent y-o-y to Rs 1,840 crore, due partly to an 86 per cent drop in profit on sale of investments to Rs 130 crore.

Thus, the pre-provisioning profit at Rs 2,599.65 crore decline 2.3 per cent. A write-back of loan-loss provision of Rs 102.56 crore compared with a provision of Rs 791 crore in Q3 FY05 and a reduction in other provisions, however, helped the bank register a higher net profit.

At the current price of Rs 883, the stock trades at a price to book multiple of 1.2 times FY06 and just one time the FY07 expected book value. Given the potential for growth, SBI is attractively valued.

With contributions from Amriteshwar Mathur and Shobhana Subramanian