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Ceramic Tiles
The ceramic tiles industry has been going through difficult times for the last two years. Almost all the major players in the industry increased their capacities in the period 1996-98, anticipating a major growth in domestic consumption and exports. However, the anticipated growth in demand did not come and the industry was faced with a situation of oversupply. The meltdown in the Asian real estate markets took a toll on exports and the slowdown of the domestic economy further impacted their fortunes.
Construction activities in the metropolitan cities fell due to falling real estate prices and the drying up of speculative demand for property. As a result, a number of smaller operators have shut shop and only the relatively stronger players have weathered the storm.
Finally good times appear to be round the corner for ceramic tile producers. A look at economic indicators for the last six months points towards a revival in the economy. Such a revival inevitably manifests itself in agreater number of housing start-ups which pushes up the demand for inputs including ceramic tiles. Though there are no reliable figures for the number of housing start-ups in the country, experts in the cement industry point out that though the metros had witnessed a slowdown in construction activity, the interiors of the country had not been impacted so severely.
Smaller cities like Hyderabad are seeing a number of housing start-ups which should help increase the demand for ceramic tiles.
The forthcoming elections have resulted in renewed infrastructure spending which is leading to an increase in the disposable income of the population. Cement sales in the country have already begun to pick up and this has largely been attributed to a sharp increase in the construction of concrete houses in rural and semi-urban areas.
Besides the spurt in new construction activities, there is also an increase in home-improvement and refurbishing activities. Real estate consultants feel that property prices should onceagain begin to improve after the elections. Considering these developments, a reversal in the fortunes of ceramic tile producers is imminent.
The stock markets appear to have already realised this and companies like SPL, Murudeshwar Ceramics and Kajaria Ceramics have seen their stocks move up considerably during the last two months. SPL, which traded at around Rs 41 per share in the beginning of July has since appreciated by over 75 per cent to around Rs 72 per share. Murudeshwar Ceramics and Kajaria Ceramics have appreciated from Rs 23 and Rs 28 per share to Rs 40 and Rs 36 during the same period. The fact that all of these players have posted encouraging results for the first quarter, has only aided the appreciation in their stock prices.
Kajaria Ceramics which posted a loss of Rs 1.29 crore for the quarter ended March 1999, turned in a net profit of Rs 2.15 crore in the quarter ended June 1999. Murudeshwar Ceramics posted a net profit of Rs 3.92 crore on a turnover of Rs 17.03 crore in the quarterended June 1999 compared to Rs 1.16 crore on a turnover of Rs 12.15 crore for the corresponding period in the previous year. SPL saw its net profit increase from Rs 7 lakh to Rs 1.59 crore while its turnover grew from Rs 24.29 crore to Rs 39.63 crore.
Crompton Greaves
Crompton Greaves shareholders have one more reason to celebrate. According to the management, the company's 40.5 per cent in Skycell Communications which was up for sale for over a year is now expected to materialise by the end of the next month. The deal is expected to yield more than Rs 200 crore for the company.
Despite the management's knowledge of the deal, the stock declined from Rs 78 to Rs 72 during the last trading week. This speaks well about the management of the company which not only appears to have refrained from insider trading but has also managed to keep the news under wraps till the official announcement.
On the breakout of the news on Monday, the scrip predictably hit the upper level of the circuit filter andwill continue to do so for at least couple of days more. Crompton Greaves' investment in the loss-making Skycell Communications (a loss of Rs 41.51 crore in 1998-99) at 25.2 crore is not material compared to its balance-sheet size. However, the profit (net of long-term capital gains tax) will be more than the cumulative net profit for the last three years. Not only that, the cash generated will be at least 2/3 of the cash and cash equivalents of the company. This includes the overdraft facility which has an impact on the revenue account.
Another good news for shareholders may be round the corner. Though the order book includes the EPC contract for Sujana Power project in Tamil Nadu, the formal financial closure (only documentation was pending) may be achieved by the end of the month. This will mean that next year will see double-digit growth because of the substantially lower interest burden (the cash generated from sale of stake will be used for retiring debt and as on March 1999, the interest cover wasbarely two) and topline growth.
It continues to remain the cheapest heavy engineering stock with the most transparent management. The one-time cash flow is an added advantage as next year will reflect the impact of Sujana power project. De-merger, which is expected to take another 14 months, will be another boon.
Emcee (with contributions from Sarad Saraf & Urmik Chhaya)
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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