Associated Cement Companies

`A grade turnaround
The second largest cement manufacturer in the country, Related Table
Associated Cement Companies (ACC), has reported a fantastic ACC: Results
turnaround for the full year ended March 2001. The unfavourable trend of incurring losses
was reversed during the second quarter of the current financial year and the same was
sustained for the subsequent quarters. This was achieved due to ACCs continuous efforts in
cost savings and improved price realisation. Also, the induction of the Gujarat Ambuja group
as a strategic partner, seems to have substantially benefited the company.
ACC has reported a net profit of Rs 47.48 crore (as against a net loss of Rs 58.85 crore in the
previous year) on a revenue (net of excise) of Rs 2,576.37 crore, which is up by 11% for the
year ended March 2001. Notably, despite the fact that the cement industry recorded a
negative growth in demand of around 1% during the year, ACC's sales volume including
traded cement showed an increase of 3% to 110.56 lakh tonnes as against 107.23 lakh
tonnes of the previous year.
Further, the refractory business recorded a growth of 4% in turnover as compared to the
previous year. Volume sales of the refractory business (including captive requirements) was
1.19 lakh tonnes as against 1.15 lakh tonnes of the previous year. This growth was achieved
due to the introduction of basic monolithics and new products manufactured at the Nagpur
refractory plant with Harbison Walker and TRB technology.
There has been a tremendous improvement in the operating profit margin (OPM) which
zoomed up to 12.9% as against 7.3% of the previous year. Thus the companys operating
profit went up from Rs 168.82 crore to Rs 332.86 crore up by 97%. The improvement in the
margin was primarily due to the cost of purchased power and fuel for power generation,
which as a percentage of sales (net of excise and stock adjustment) dipped from 14.8% to
12%.
Also, staff cost as a percentage of sales (net of excise and stock adjustment) went down to
6.6% as against 7.8% of the previous year. This was because of the reduction in man power
by a few thousands in the past. ACC also intends to trim the workforce by a thousand more
in the next couple of years through a voluntary retirement scheme.
Other income (excluding extraordinary items) for the year was up by 31% at Rs 57.70 crore.
Interest cost was marginally up by 5% at Rs 170.18 crore. This sky-rocketed the profit before
depreciation, extraordinary items and tax to Rs 220.38 crore as against Rs 51.09 crore (up
by 331%). Depreciation was higher by 13% at Rs 141.28 crore due to the commissioning of
Chanda, Mudukkarai and various other projects and the full years impact of captive power
plants of 25 MW each at Jamul and Kymore which were commissioned in November 1999.
Thus, at the PBT level, ACC reported a profit of Rs 79.10 crore as against a loss of Rs 73.42
crore. During the year, the company incurred an extraordinary expense (net) to the tune of
Rs 27.97 crore as against an income of Rs 14.57 crore of the previous year.
The extraordinary item this year comprises Rs 30 crore towards "written down assets" in
view of the closure of the synthetic ferric oxide plant due to adverse market conditions. Also,
a sum of Rs 13 crore has been kept aside in form of provision for contingency with respect of
the companys investment in its subsidiary. On the income side, there is an amount of Rs
15.03 crore as profit on sales of assets, provision relating to previous year written back and
other non-recurring items.
For the year, the company has incurred a sum of Rs 3.65 crore towards provision for tax
which was nil in the previous year. Due to this provision for tax and extraordinary expenses
as against the income of the previous year, the profits were restricted to Rs 47.48 crore.
For the year ended March 2001, the board has recommended a 20% dividend on the paid-up
equity capital aggregating to Rs 37.62 crore (including tax on dividend).
For the last quarter ended March 2001, the performance of the company was remarkable. It
has posted a net profit of Rs 57.87 crore as against a net loss of Rs 48.89 crore in the
corresponding previous quarter. While net sales rose by 13% to Rs 674.71 crore, there has
been a superb improvement in the margin which improved from just 3.9% to 20%. This
resulted in a 474% jump in operating profit from Rs 23.45 crore to Rs 134.68 crore.
Further, interest cost and depreciation were down for the quarter at Rs 41.71 crore (down
2%) and Rs 34.96 crore (down 7%) respectively. This led to a profit before tax but before
extraordinary items of Rs 77.75 crore as against a loss of Rs 40.16 crore.
However, during the quarter, extraordinary items (net) were up by 86% to Rs 16.23 crore.
Also, ACC has provided an amount to the tune of Rs 3.65 crore towards provision for taxation
in the quarter which restricted the profit to Rs 57.87 crore as against a loss of Rs 48.89
crore.
During the year 2001, the company commissioned its new Wadi plant of 2.6 MTPA, which is
the largest kiln in the country. It is expected to go on full steam shortly. With the
commissioning of this plant, ACCs installed capacity of cement is the highest in the industry
at 15.3 million tonnes.
ACC has also completed the modernization and expansion of the Chanda and Madukkarai
cement plants for increasing their capacities to around 1 MTPA each. These plants started
production from 1 September and 1 October respectively and helped in triggering the
company's top line growth. The de-bottlenecking at Chanda, Gagal and Madukarrai plants
have added 1 MT to ACC's installed capacity.
Also, the construction of a 15-MW thermal power plant at Chanda Cement Works is
progressing satisfactorily and will be completed as per schedule. ACC also plans to have a
similar power plant of 15 MW at Madukkarai.
ACC has decided to put on hold its plans to set up five new ready mix concrete (RMC) plants.
Instead, it has decided to consolidate the RMC operations in the existing 13 RMC plants
spread across the country. During the year, the RMC business achieved higher turnover of Rs
91 crore as compared to Rs 76 crore of the previous year. The company has also decided to
go in for a capacity expansion in the operational units.
The reconstruction of Gujarat is likely to enhance cement demand by 2-3 million tonnes over
the next year. Sales to the quake-hit areas have been exempted from excise duties. At the
same time, the lowering of custom duty on cement and clinker by 10% will hardly have an
adverse impact on the industry except to the extent that further rise in prices from the
current level will not be possible.
The increase in freight rates by 3% on cement and 2% on coal will only have a marginal
impact on the sector. Cost will go up only marginally.
Since mid-November 2000, cement prices have been ruling high. If the same trend
continues, cement companies like ACC will be on a much stronger footing to take on the next
year. However, the on-going MRTPC inquiry into the alleged cartel is a dampener and any
adverse decision in this respect could spoil the party. One will have to keep a tab on imports
of cement. Any large scale import could also spoil the prospects.
For sustained growth,a rise in demand for cement is crucial. For that to happen, the
government will have to kick-start infrastructure investment including roads.
The company has declared a dividend of 20%.
The scrip closed at Rs 149.80 (up 11%) due to the excellent results. However, the results are
more or less in line with analysts' expectations.
Associated Cement Companies

`A grade turnaround
Related Table
0103 (3) 0003 (3) Var (%) 0103 (12) 0003 (12) Var (%)
Sales (net) 674.71 598.86 13 2576.37 2323.39 11
OPM% 20.0 3.9 12.9 7.3
OP 134.68 23.45 474 332.86 168.82 97
Other Income 19.74 16.59 19 57.70 44.04 31
PBIDT 154.42 40.04 286 390.56 212.86 83
Interest 41.71 42.48 -2 170.18 161.77 5
PBDT 112.71 -2.44 LP 220.38 51.09 331
Depreciation 34.96 37.72 -7 141.28 124.51 13
PBT 77.75 -40.16 LP 79.10 -73.42 LP
EO -16.23 -8.73 86 -27.97 14.57 PL
PBT after EO 61.52 -48.89 LP 51.13 -58.85 LP
Tax 3.65 PL 3.65 PL
PAT 57.87 -48.89 LP 47.48 -58.85 LP
EPS* (Rs) ## 4.3
## EPS cannot be
annualized due to
seasonality in
business
* on the current
equity of Rs 170.88
crore