Cement: Weakening bond

Total cement despatches rose 2.1% due to poor show in October, November

The cement despatches of top four players, Grasim, ACC, Ambuja Cements and UltraTech Cement, grew by 3.7 per cent y-o-y to 57.6 lakh tonnes in December 2007.

However, a lacklustre performance in the months of October and November 2007 on a y-o-y basis, resulted in their total cement despatches rising by a mere 2.1 per cent y-o-y to 167.9 lakh tonnes in the December 2007 quarter.

The total despatches of the four players had, in contrast, grown by an impressive 11.3 per cent y-o-y to 157 lakh tonnes in the September 2007 quarter, thanks to a low base effect in the corresponding previous period.

In addition, players such as Grasim expanded their realisations by 12 per cent y-o-y in the September 2007 quarter.

Meanwhile, analysts are forecasting an 8-10 per cent y-o-y rise in realisations for these top four players in the December 2007 quarter.

However, cement companies are grappling with the higher costs of inputs such as coal prices in the last quarter. ACC is expected to report an 8-9 per cent y-o-y growth in its operating profit in the December 2007 quarter, while for Ultratech Cement the increase in operating profit is expected to be around 18 per cent in Q3 FY08.

Investors have, however, shown signs of caution with regard to the cement sector over the past three months "" for instance, Grasim has fallen marginally during this period compared with 17.2 per cent rise in the Sensex.

ACC dropped 10 per cent over the past three months. ACC trades at 13.7 times estimated CY08 earnings, while Grasim gets a discounting of 14.5 times estimated FY08 earnings and 13 times FY09 earnings.

Cranes Software: Engineered growth

Statistical analytics and engineering simulation software-maker Cranes Software acquired the US-based Engineering Technology Associates (ETA) for Rs 72 crore.

The acquisition will enable Cranes to step into the automotive design and engineering markets, since ETA is a vendor of computer aided engineering products for auto safety, vibration and noise testing under simulated conditions.

ETA is a tier-one vendor to the top three US carmakers, with a team of 120 engineers and an advanced design and product development centre in China.

Thus, the acquisition would pave the way for Cranes' entry into the Chinese auto industry, besides adding a skill-set to its kitty.

Cranes, which began as a distributor of scientific and engineering software, has built a portfolio of products through acquisitions and also owns some intellectual property through 14 specialised scientific software products.

Cranes acquired products for Rs 115 crore over 2002 to 2006, and invested Rs 110 crore in acquiring four software outfits over the past year.

Cranes' top line has grown at a CAGR of 53 per cent between 2002 and 2007, with its operating profit growing at over 58 per cent. The revenue contribution from its proprietary products grew from 60 per cent five years ago to 80 per cent in FY07.

At a price of Rs 146, the stock is valued at 13 times estimated FY09 earnings of Rs 11.50 and 10 times estimated FY10 earnings of Rs 15.20, which appears reasonable compared with other product-based software players.

With contributions from Amriteshwar Mathur and Niren Shah