Concrete growth

Cement despatches stay buoyant for second consecutive month

Top four cement players have reported a robust performance in February 2006, with despatches growing 16.15 per cent y-o-y to 51.41 lakh tonne in February 2006.

It is the second consecutive month of strong growth, for the four players expanding despatches by 13.07 per cent y-o-y to 56.38 lakh tonne in January 2006. Clearly, the traditional pick-up in construction activity at this time of the year has helped to improve cement demand.

Cement companies have been grappling with a recent Supreme Court ban on overloading of trucks. As a result, freight costs for cement companies are estimated to have risen about Rs 7-8 a bag, say analysts.

In a bid to offset this rising cost, cement prices in the Delhi market are understood to have risen by about Rs 20 a bag over the last two months, to around Rs 190. In Mumbai, prices have gone up about Rs 25-30 a bag to Rs 215. Other inputs for the industry, such as coal, have shown signs of remaining stable.

Given this ruling, cement firms are looking to enhance the proportion of their output transported by rail, so that they can keep operating costs under check. ACC and Shree Cement are estimated to transport about 45 per cent and 30 per cent of their output respectively by rail, say analysts.

Meanwhile, the street is optimistic that higher cement prices should help larger players report improved operating profit margins in the March 2006 quarter.

As a result, ACC has gained about 29 per cent over the past two months compared with 13 per cent rise in the Sensex. UltraTech too has gained over 32 per cent during this period.

However, cement stocks do appear expensive, with Gujarat Ambuja trading at 22 times estimated June 2006 earnings and Shree Cement at 22.5 times estimated March 2006 earnings.

Aurobindo: Focus on US & Europe

Though domestic pharmaceutical companies have had a rough time, mainly in the US because of a deterioration in pricing power, Aurobindo Pharma has only increased its presence in the regulated market.

The company has acquired the generics player Milpharm in the UK, which had a turnover of Rs 60 crore in year-ended September 2006 for an undisclosed amount. Aurobindo is weak in Europe and this acquisition will give it presence in Europe.

Aurobindo plans to sell one of its units as it is not compliant to foreign regulatory standards, and has exited from its loss-making JV with Citadel, as it is not a focus area.

The company has also received approvals for some generics in recent months, though some of them are variations in dosage forms. Analysts expect the anti-AIDS category to do well in the next two years.

After two disappointing quarters, the company has put up a good show in the December 2005 quarter. Operating profit increased 81 per cent y-o-y to Rs 58.2 crore. Operating profit margins went up by 417 basis points to 14.23 per cent in Q3 FY06. The company managed to reduce raw material costs as a percentage of sales in Q3 compared with the first half.

The Aurobindo stock has appreciated over 50 per cent in the past three months along with expectations of better performance as well as the company's aggressive product launches and US FDA approvals. As a result, at about 18-19 times FY07 EPS, the stock appears on the higher side.

Two-wheelers: Revving up

Bajaj Auto topped the motorcycle volume charts in February 2006 with a splendid 35 per cent y-o-y growth against the combined 20 per cent posted by three leading two-wheeler players. Its entry-level and premium models continue to perform well, while sales in the executive segment are gathering speed. Of the total 58,761 units of Discover sold, approximately half are believed to have come from the new variant Discover 112c.

Hero Honda grew at a slightly disappointing 12 per cent y-o-y, though it should easily cross 2.5 million in FY06. The company's scooter model Pleasure is believed to have got a satisfactory response.

TVS Motors did well to grow at 16.5 per cent, though on a much lower base compared with peers. Its recently launched Apache, in the premium segment, is believed to be doing well in south and the company is targeting volumes of around 15,000-20,000 a month.

Combined two-wheeler volumes for the month were reasonably good at 18 per cent y-o-y growth, driven by purchasing power and the availability of cheap bank funding.

However, growth between April and February remains lower at 17.5 per cent for all two-wheelers. For the same period, motorcycles have grown at a slightly higher 19.9 per cent.

With contributions from Amriteshwar Mathur and Shobhana Subramanian