Shree Cement: Strong growth

Revenues rose during the quarter on the back of higher volumes and better realisations.

Shree Cement had a good December 2007 quarter. The company's revenues increased by 43.3 per cent y-o-y to Rs 523.6 crore on the back of higher volumes and better realisations.

Its operating profit rose by nearly 40 per cent, which is commendable as there has been cost pressure on the freight and power front. The operating margin declined 100 basis points y-o-y to 42.7 per cent.

The sales increased by 23 per cent y-o-y to 1.6 million tonne during the quarter, while net realisations improved by over 20 per cent y-o-y to Rs 3,200 a tonne.

While the raw material cost rose by a mere 14 per cent, the freight, power and fuel, staff cost and other expenditure went up between 40 and 77 per cent on a y-o-y basis. But, on a sequential basis, power and fuel costs increased by merely one per cent.

However, the company's net profit dipped 66 per cent y-o-y. The depreciation costs went up by 613 per cent due to the commissioning of new grinding capacity worth 1.5 million tonne a year.

While the cement demand grew at the rate of 10.3 per cent across the country in the first eight months of FY08, demand in the north, where Shree Cement operates, grew at 11.2 per cent. A lot of new capacity is being added in the cement sector by FY09 and this will lead to a surplus capacity in some regions.

However, analysts are of the view that some of the projects are likely to get delayed. Shree Cement will increase its capacity by another 1.5 tonne in the next two quarters.

Shree Cement is one of the more efficient players in the industry. Analysts believe that it will continue to grow at twice the industry growth rate, in FY09. At the current market price of 1332, the company shares trade at around 12 times estimated FY08 earnings and 10 times FY09 earnings.

Mastek: Powering ahead

Mastek reported an improved performance in the December 2007 quarter, thanks to an improvement in revenues from US operations, which include the recently acquired VectorMastek, and strong growth from UK operations (contributing 66 per cent to its total revenues).

As a result, Mastek's operating profit grew 23.6 per cent q-o-q to Rs 36.6 crore in the last quarter, while its revenues expanded 3.6 per cent q-o-q to Rs 211.65 crore.

The company was able to improve productivity in its fixed price projects and better cost controls enabled its operating profit margin to improve 280 basis points q-o-q to 17.3 per cent in Q2 FY08.

iGate, which is also a mid-cap IT services company, saw its operating profit margin increase 170 basis points q-o-q to 17.5 per cent in the last quarter.

Mastek had earlier highlighted that it would raise $40 million towards acquisitions, and buy back shares at a price not exceeding Rs 750 a share, for an aggregate amount of Rs 65 crore.

The investor interest in this stock has been strong over the past three months. The shares gained 8 per cent during this period compared with a 15.7 per cent decline in the BSE IT index.

Meanwhile, Mastek's management has guided a 2-4 per cent q-o-q growth in total income (revenues plus other income) coupled with a 7-11 per cent q-o-q growth in its net profit, for the March 2008 quarter. At a price of Rs 344, the stock trades at a reasonable 9 times estimated FY08 earnings and 8.5 times FY09 earnings.