Cement sales: Dull November

Low winter demand and drop in despatches from industry majors throw up weak numbers

The top-four cement players (Grasim, ACC, Ambuja Cements and UltraTech Cement) reported a lacklustre performance in November 2007, with their total despatches declining by 1 per cent y-o-y to 52.37 lakh tonnes during the month.

This lacklustre performance could be partially explained by lower despatches from the two Aditya Birla group companies, which declined by 6.84 per cent y-o-y to 22.97 lakh tonne.

Analysts also highlighted that cement players were grappling with sluggish demand conditions in several northern markets in November, given the winter season, when there is lower outdoor construction activity.

Cement prices in Mumbai are at Rs 260 a bag currently, a rise of Rs 5 compared with the pre-monsoon price, add analysts. In Delhi, cement prices are understood to be steady at Rs 225-230 a bag.

Senior government officials once again warned the cement industry against cartelisation on Tuesday and expected production levels to improve.

Meanwhile, in October 2007, the top four cement players grew their despatches by 3.2 per cent y-o-y to 57.93 lakh tonnes. The growth reported in these two months was considerably lower than that in the September 2007 quarter.

For instance, total despatches of the four players grew by an impressive 11.3 per cent y-o-y to 157 lakh tonnes in the second quarter of FY08 due to a low base effect in the previous year.

Cement stocks are trading at reasonable levels, given their growth prospects in the near term.

For instance, ACC is trading at 15 times the estimated CY07 and 15 times the CY08 earnings, while Ultratech Cement is available at 14 times the estimated FY08 and 12.5 times the FY09 earnings.

Holcim completed its open offer for Ambuja Cements on Monday, increasing its stake in the company by 13 per cent to 46 per cent.

ABG Shipyard: Smooth sailing

The ABG Shipyard stock gained 3.4 per cent on Tuesday on the back of the company's plans to raise funds through a QIP placement and warrants to promoters. Demand is buoyant in the shipbuilding industry, with companies having order-books that are in multiples of their revenues.

So it is no surprise to see the company posting robust numbers in the September 2007 quarter as it delivered two vessels to customers.

As a result, the company's standalone operating profit grew 33.3 per cent y-o-y to Rs 64.4 crore in the last quarter, while its net sales rose 26.3 per cent to Rs 211.84 crore.

Its operating profit margin also improved 160 basis points y-o-y to 30.4 per cent in the second quarter of FY08.

The company also benefited as its adjusted raw material costs as a percentage of net sales declined 50 basis points y-o-y to 58 per cent in the last quarter. In the June 2007 quarter too, the company's operating profit margin improved 90 basis points y-o-y to 27 per cent.

In the September 2007 quarter, ABG bagged orders worth Rs 2,899 crore from its overseas clients and the company is expected to realise revenues from this contract over the next few quarters.

The company's outstanding order-book at the end of October 2007 was Rs 7,120 crore compared with Rs 5,560 crore at the end of July 2007.

ABG Shipyard had earlier acquired Western India Shipyard (WISL) and this move will give it access to the fast growing ship-repairing business, mainly coming from the offshore sector, including drilling rigs.

However, a key focus of the ABG Shipyard management would also be on achieving a turnaround in the performance of WISL, given that WISL reported a loss of Rs 20.7 crore at the net level in FY07.

At Rs 994, the ABG Shipyard stock trades at 29 times the estimated FY08 earnings, given its growth prospects and order-book.