Though on a quarter to quarter basis, earnings are flat, Gujarat Ambuja's results are commendable considering that the price per bag in Gujarat had dropped to and is ruling at around Rs 90.

In the case of India Cements(ICL), the sharp decline in price is a combination of three factors--the deployment of funds, pending equity dilution and anticipation of poor results due to poor performance of the shipping division. (Grasim has not been included here as it is a diversified company).

The excellent performance of GACL can be partly explained by savings on power cost due to self-sufficiency. Per unit cost of generation through DG sets is Rs 2.6 against grid charges of Rs 4.4 per unit. On the basis of information made available by the company, the reduction in expenditure should (assuming thesame other income in first quarter of either year) account for the improved margin.

With the policy of self-sufficiency, the company does not have to pay standby charges. Sales tax incentives of Rs 300 per tonne have also helped the company's operating margin. But it is no secret that in Gujarat, companies are just able to recover the cost (if they enjoy sales tax benefits) and the operating margin of 36 percent is commendable.

The higher sales volume (1.17 million tonne compared to 0.97 million tonne) dilutes the possibility of cement stock pile-up but clinker might have been piled up and grinding postponed to post-monsoon period. No production figures are provided and even in the annual report, the break-up of closing stock in clinker and cement in never given; hence it is almost impossible to calculate cost/tonne of cement produced.

Sales in Kerala could have hardly be a reason for the improved margin because though the price/bag is ruling at Rs 145/bag, for the first quarter the jetty was not readyand bulk despatches through Konkan Railway (at lower than railway freight) were just marginal. However, despite the growth of 20 percent in despatches, due to lower average realisation by 12 percent, net sales at Rs 203.4 crore was up by just 6 per cent. The lower realisations indicate that Gujarat and Mumbai accounted for a major share of despatches.

It is high time that Ambuja instead of providing comparisons with other cement companies provide more meaningful information like item-wise (clinker and cement) closing stock.

Madras Cement has the most modern cement plant in the country. Despite 18.5 percent lower despatches (5.82 lakh tonne) in the second quarter (7.15 lakh in the first quarter), sales are up by 6 per cent due to firm prices in the south particularly in Tamil Nadu and Kerala from July onwards. The operating margin in the second quarter is up by 3 percentage points to 36 per cent and on first half to first half basis, the OPM is up by 3.5 percentage points.

The better performance in thesecond quarter of the current year is also due to 40 percent higher income from wind mills (Rs 6.7 crore in second quarter against Rs 4.04 crore in the first quarter). Production at the Alathiyur unit (capacity:0.9 million tpa) started in mid-may 1997 and hence the operational efficiency of the unit in the second quarter of the year will be much better than the corresponding period of last year. Despite the break-up of the cartel in the south, MCL will not be affected due to the stringent cost control measures.

In the second quarter itself, the expenditure was lower by Rs 15 crore compared to the first quarter. Interest and depreciation charges are the same as in the first quarter. At the current market price, only GACL and Madras Cement are the cement stocks worth buying.

The performance of India Cements was adversely affected by the performance of the shipping division. The profit of the division was down by Rs 11.29 crore on a half to half basis and income from the division was lower by Rs 15.25 crore.It is hard to understand as to how decline in the profit of a division is less than decline in income. Compared to the first quarter, cement volumes in second quarter were lower by 18 percent but was compensated by higher realisations. ICL has three plants in Tamil Nadu and is also a major player in Kerala, the states which enjoyed the highest realisation.

Like other cement majors, cost cutting was a priority. Despite the fact that the impact of Yerranguntla plant was reflected for only 42 days in the first quarter of the year, the expenditure in the second quarter was down by Rs 30.25 crore. The VRS introduced in September 1998, has resulted in reduction of work force by 961 persons. But despite better performance in the second half, the P/E is unlikely to improve due to equity dilution and funding of subsidiaries.