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Improved price realisations result in a 32% net profit for GACL

Netscribes/Prabodh Chandrasekhar

With its ability to judiciously curtail capacity utilization coupled with excellent financial management, Gujarat Ambuja Cements Ltd has managed to improve its net profit margin by 19.31 per cent during the quarter ending March 31, 2001, as against 17.5 per cent in the previous corresponding year.

GACL operated at an utilisation rate of 87 per cent in the Q3 ending March 31, 2001, as compared to 94 per cent in the corresponding period of the previous year. The total capacity of GACL is 15.14 million tons and it presently commands a market share of 20 per cent.

The capacity utilization for the previous quarter was 90 per cent. GACL sold 1.54 mt cement in Q3 ending March 31,2001 compared to Q2's 1.50 mt.

The price arrangement and the production cut agreed jointly by cement manufacturers helped GACL to improve margins.

Average sales realization during Q301, after deducting excise duties was Rs 2,211 per tonne as against the figure of Rs 1,902 during the corresponding period of the previous year. The increase in sales realisation was 16 per cent.

Another notable point that has helped GACL improve its bottomline is its ability to shuffle its borrowings and in the process reduce finance costs.

Unlike its counterparts like ACC, Grasim and L&T , GACL reduced its interest costs by issuing a 5-year-maturity convertible bonds in the international markets thereby raising $99.3 million.

The bonds carried carrying a very low coupon rate of 1 per cent per annum.

"Gujarat Ambuja will definitely get the advantage over here because the other financial institutions, charge an interest of about 13 per cent and here at the most, the company has to shell out at the most, 2 per cent. Thus, it will be able to save at least 11 per cent on the total borrowings", says an analyst from Warburg Dillon Read, a European brokerage firm.

Further, GACL is clearly at an advantage when these bonds will be converted into equity share of Rs 222.34 per share, which is at a premium equal to the market price.

GACL has been realising more operating profit, compared to its counterparts during the last couple of years. In Q400, the company's operating profit was Rs.1.04 billion, compared to the rest of the cement companies like ACC (Rs 208 million), Grasim (Rs 460 million).

"GACL's main plant is in Gujarat, which has the soft variety of limestone. This reduces the crushing time and therefore production costs are significantly lower than plants in other regions. This is an advantage for the company. The costs incurred by GACL is only Rs 75 per tonne on raw materials compared to the other companies who have to spend Rs 150-200 per tonne compared to the other costs", said the analyst.

Speaking of costs, GACL is also one of the companies that imports coal. Over a period of eight years, GACL had to incur minimal expenses compared to the other companies because of the use of imported coal and its captive power plants.

Moreover, GACL's 80 per cent of power requirements is met by captive power plants, which immunizes power cuts from Gujarat State Electricity Board.

GACL achieved a net profit of Rs 656.9 million, in Q3 ending March 31, as against Rs 499 million compared to the previous year, a 32 per cent growth.

"It's slightly below my expectation as we had estimated the net profit to touch Rs 700 million", said an analyst from a Mumbai-based European brokerage firm. Turnover during the period was Rs 3.86 billion as against the previous quarter's Rs 3.31 billion, which is an increase by 17 per cent.

Operating profit had grown by 27 per cent at Rs 1.32 billion as against Rs 1.036 billion the previous quarter. GACL had observed an operating profit margin of 33 per cent in the calendar year 2000.

With its recently commissioned cement grinding unit at Bhatinda, Punjab, the company will be able to cater to the lucrative south Punjab market. With greater volumes, GACL will be able to compete on cost with other cement companies.

Besides, work for the 2 million tonne plant in Chandrapur, Maharashtra, is under progress and expected to be commissioned in December 2001.

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