Shree Cement: Cementing gains

Shree Cement's numbers augur well for the industry

Shree Cement, is the first cement player to report its results for the September 2006 quarter, posting an impressive performance, thanks to higher sales volumes and improved price realisations.

The company's operating profit has grown a whopping 173 per cent y-o-y to Rs 142.67 crore in Q2 FY07 compared with 103.4 per cent growth in net sales to Rs 315.95 crore.

Also, the firm has seen its operating profit margin improve by 1156 basis points y-o-y to 45.16 per cent in the September quarter. Despite improved results in the last quarter, the stock dipped 3.6 per cent to Rs 1096.85 on Tuesday.

However, prior to Tuesday's dip, the stock had gained 35.5 per cent over the past three months compared with 15.7 per cent rise in the Sensex.

Although not strictly comparable, in the June quarter, its operating profit margin improved by 1330 basis points to 44.4 per cent. Its cement sales grew 44.1 per cent y-o-y to 11.1 lakh tonne in Q2 FY07, helped by its third unit coming on-stream in February, which has increased its capacity by 1.5 million tonne.

Shree Cement did have to grapple with rising freight costs, given the well documented Supreme Court judgement banning overloading of trucks.

However, rising input costs appear to be fully offset, as realisations have improved by 29 per cent y-o-y to Rs 2846 per tonne in Q2. In the June quarter, its realisations had improved by 35 per cent y-o-y to Rs 2620 levels, say analysts.

Clearly, if one were to use Shree Cement's last quarter results as a benchmark, other players are also expected to see a similar sharp rise in their quarterly performance.

The Shree Cement stock trades at 13 times estimated FY07 earnings, which seems reasonable given the growth potential in the medium term.

IL&FS Invest: Flat offer

Investors are going to have little reason to tender their shares in E*Trade's open offer for IL&FS Investsmart. The stock has bounced back from Rs 103 levels in late July to the current Rs 195, and the open offer price of Rs 210 does not appear mouth-watering.

After the conversion of its GDRs into shares, E*Trade's shareholding in IL&FS Investsmart will touch 27.87 per cent, which triggers the open offer.

The US-based retail broker E*Trade has been a strategic investor in the company and has slowly increased its holding in the company, which indicates that it is comfortable with IL&FS Investsmart's business and the management. In the September 2006 quarter too, E*trade had increased its shareholding in IL&FS Investsmart through block trades.

IL&FS Investsmart had nearly 57 per cent of its consolidated income accruing from broking and the rest through financial intermediation (merchant banking and syndication).

Even if E*Trade manages to garner a small portion of the 20 per cent shares that it seeks to buy, it could well become the largest shareholder in the company.

Financial institution IL&FS owned 30.64 per cent in the company at the end of FY06. For the IL&FS Investsmart shareholder, E*Trade's direct involvement augurs well.

Automobile sales: Stepping on the gas

With passenger cars having grown at 22.84 per cent y-o-y between April-September 2006, and motorcycle sales higher by 18.5 per cent, the consumption story is obviously intact. Worries that fuel prices and higher interest rates would stymie sales now seem exaggerated.

However, the second half of the year may not see this kind of growth on a higher base, during the festive season. In fact, motorcycle makers are hard pressed to raise prices and are still resorting to discounts to be able to grow sales.

On the commercial vehicles front too, the numbers are exciting with medium & heavy commercial vehicles having grown at 40 per cent y-o-y and light commercial vehicles at 33 per cent.

These too could taper off somewhat in the rest of the year, but even that seems unlikely given that the ban on overloading is being implemented.

Overall, the trends are better than expectations for two-wheelers and cars and with the economy growing at 8 per cent, stable interest rates, fuel prices in check and players continuously coming out with new models, the momentum should not flag significantly.

For the September quarter, companies across the automobile sector should post strong numbers both at the top line and margin levels.

Operating profit margins should improve on the back of higher sales growth cushioning the impact of raw material costs. Revenue growth for the CV majors Tata Motors and Ashok Leyland could well be in excess of 30 per cent.

Hero Honda might not fare as well as its peers, but M&M should turn in good numbers with the farm equipment segment having seen good growth.

With contributions from Amriteshwar Mathur and Shobhana Subramanian