Cement: Buoyant show

Top four players report 16.1 per cent growth in dispatches

The top four cement players (ACC, Ambuja Cements, Grasim and UltraTech) reported an impressive performance in August 2007, with their total dispatches expanding by 11.5 per cent y-o-y to 50.81 lakh tonne.

Analysts highlight that in July-August 2006, there were heavy rains and flood-like situations across several parts of Maharashtra, southern Gujarat and parts of Andhra Pradesh, thus creating a low base effect. In addition, analysts also point out to improved utilisation levels at ACC's factories in the previous month.

In July 2007 too, the top four players reported a 16.1 per cent y-o-y growth in dispatches to 54.31 lakh tonne. Prices in Mumbai are currently pegged at Rs 265 per bag levels and have been more or less steady over the last few months. In New Delhi, prices are stable at Rs 230 levels.

In the June 2007 quarter, these four players had seen their despatches grow by merely 4.7 per cent y-o-y to 176.07 lakh tonne. Cement stocks have outperformed the market since the beginning of the current quarter.

For instance, ACC has gained 16 per cent during this period compared with 3.9 per cent rise in the Sensex. Also, Grasim has gained 11 per cent during this period.

Last month, Holcim had made an open offer for Ambuja Cements at Rs 154 and that worked out to a premium of about 29-30 per cent to the average stock price 26 weeks prior to the announcement. Grasim trades at 12.6 times estimated FY08 earnings, while ACC gets a discounting of 16.2 times estimated CY07 earnings.

Reliance Industries: Slick move

With the purchase of the Mauritius-registered Gulf Africa Petroleum Corporation (Gapco) for an undisclosed sum, Reliance Industries has made an overseas acquisition after a gap of nearly three years since its purchase of Germany-based Trevira. The idea behind both these acquisitions is Reliance's objective of expanding quickly in a foreign market.

Trevira has helped the company strengthen its foothold in the rapidly growing European polyester market. It does appear that Reliance's latest acquisition is also focused on aggressively gaining market share in the East African auto-fuel retailing segment through Gapco's 250-odd outlets in those regions.

The Reliance management will focus on gaining synergies by exporting products from its upcoming refinery in Jamnagar (Reliance Petroleum) to its newly acquired assets in Africa.

Although, little financial details are available of Gapco's past financial performance, analysts do not expect any major expansion to RIL's turnover in the short term. This acquisition was announced after the close of trading on Tuesday, and on Wednesday, the RIL stock closed 0.7 per cent lower at Rs 1957.

Shreyas Shipping: Gaining clout

In the past two years, logistics players have increasingly been consolidating their businesses through acquisitions - either they have acquired additional capacities or entered into new businesses to complete their services portfolio.

Shreyas, which operates in both shipping and logistics segments and didn't have presence in the air freight business has acquired 51 per cent stake in Haytrans (India) from Sri Lanka's Hayleys group.

The remaining 49 per cent in Haytrans India will continue to be held by Transworld group, the promoters of Shreyas Shipping & Logistics. While the company has not disclosed the cost of the acquisition, the management said Haytrans (India) had revenues of Rs 50 crore and net profit of Rs 2 crore in FY07.

Besides, Haytrans will provide a ready client base to Shreyas, and also a network of agency operations elsewhere in the world. Earlier, logistics players such as Gati and Gateway Distriparks had acquired cold storage firms, and many of the players will start running freight trains. Gateway has also entered container freight station companies in partnership;

Over the past three years, Shreyas has concentrated on growing its logistics business, which brought in 55 per cent of FY07 revenues with the rest coming from shipping. In the June 2007 quarter, Shreyas's standalone revenues grew 29 per cent to Rs 38.8 crore.

However, fuel costs went up nearly 650 basis points as a percentage of sales, which resulted in operating profit margin declining by 395 basis points to 21 per cent.

Segment margins in both shipping and logistics declined by over 300 basis points, but a Rs 5 crore forex gain helped the company improve net profit by 45 per cent to Rs 8.6 crore. After Wednesday's announcement, the stock gained 17 per cent to Rs 106, and the stock trades at about 7 times estimated FY08 earnings.