Strengthening base

Cement industry showing signs of improvement

The top four cement players have reported a 5.2 per cent growth in cement despatches to 50.31 lakh tonnes last month over October 2004.

However, Gujarat Ambjua has grown slower than other leading players in the last month and that is largely due to its cement exports which have declined 29 per cent over October 2004, point out analysts.

That's because in its key export markets of the Middle East, construction activity significantly reduced due to the festival of Ramzan.

In contrast, the top four players had grown their total cement despatches by merely 2.96 per cent to 128.72 lakh tonnes in September 2005 quarter.

Sluggish cement despatches in the last quarter were due to heavy rains across several parts of the country and the transporters' strike in Himachal Pradesh.

Meanwhile, the Street appears to have factored in an improved performance for this industry in October "" for instance, Grasim has appreciated 14.3 per cent in the last 10 days, as compared to an 8.2 per cent gain in the broader market.

Cement prices have shown an upward trend in the last month - for instance, in Mumbai and Kolkata markets, prices are up about 2-3 per cent over last year.

However, these higher cement prices are expected to only partially offset the rise in input costs. Like earlier quarters, cement companies are grappling with higher costs incurred on freight and forwarding due to the hike in retail fuel prices.

For instance, ACC had seen its outward freight charges jump 30.75 per cent to Rs 165.08 crore in September 2005 quarter. As a result, its operating profit margins had fallen 291 basis points to 14.73 per cent.

However, there is some respite for cement companies in the form of imported coal prices showing signs of weakening and this should help players manage power and fuel costs better.

Going forward, the traditional pick-up in construction activity post-monsoon is expected to translate into improved despatch figures for cement companies.

TCS: Acquisition spree

If TCS has missed the business process outsourcing (BPO) bus when compared to its peers, it is fast making up through acquisitions.

Coming within less than a month of the acquisition of UK-based Pearl Group's BPO division, TCS has now acquired Comicron in Chile. This acquisition is in line with TCS's strategy of being in platform-based vertical BPOs.

Pearl Group is the second largest player in the UK life and pensions industry, while Comicron is the market leader in Chile's banking and pensions BPO business.

In October, it had also acquired banking product company FNS in Australia. With three acquistions in the banking, financial services and insurance (BFSI) space this quarter, TCS seems to have become very serious in this vertical.

With a presence in Chile, TCS has acquired Spanish language capability. TCS has paid around 0.65 times revenue for the 100 per cent stake in Comicron, which is not expensive but TCS will have to improve operating margins from the current 14 per cent. Comicron also caters to clients in neighbouring countries.

TCS will pay £55 million over four years for more than 75 per cent stake in a subsidiary where Pearl Group will hold the remaining stake. This company will provide life and pension BPO services to Pearl Group.

The revenues of TCS's new subsidiary are estimated at £50 million. Over 12 years, this business will bring £486 million over 12 years from the Pearl Group, which is a good deal for TCS.

TCS is also staying away from the low margin voiced-based BPO business with both the acquistions being transaction BPOs. TCS's Indian BPO operations caters to the BFSI, telecom, retail, travel and hospitality and pharmaceuticals verticals, but with an employee strength of 2,000, it is much smaller than its peers.

With 950 employees at Pearl Group and 1,257 employees in Comicron, its employee strength is slightly lower than Progeon's (Infosys) 4,700 employees. Wipro BPO is far ahead with 13,000 employees.

In Latin America, TCS wants to leverage Comicron's relationships to offer banking solutions in both IT and BPO services.

In the UK, it will offer transaction processes services to other clients. Both acquisitions will enable TCS to gain expertise in the transaction-based BPO operations and take it to other markets.