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Ambuja Cements

I have been holding a few shares of Ambuja Cements for quite a long time. Should I continue to hold these?
- Kunal, Via Email

BSE/NSE Code 500425/AMBUJACEM
Face Value Rs 2
CMP Rs 179
52-Week high/low Rs 215/Rs 147
Current Profit/(Loss) N.A.

First, while writing in with your next query, please do mention your acquisition cost. This will help us in giving you the right advice, taking into consideration the quantum of profit or loss that you are sitting on.

Ambuja Cements is a well-known brand in the cement sector, which commenced operations in the year 1986. In 2006, Holcim acquired management control of the company and now holds 50 per cent of the equity. The current capacity of the company stands at 27.25 million tonnes.

On the financial front, Ambuja posted disappointing numbers for the quarter ended September 2013 (the company follows the calendar year as its financial year). Its topline suffered by seven per cent and came in at Rs 2005 crore in Q3CY13 as against Rs 2165 crore in Q3CY12. The bottomline dipped by a sharper 45 per cent on a YoY basis, from Rs 304 crore to Rs 166 crore. The sales volume of cement and clinker rose by two per cent YoY to 4.89 million tonnes (MT), but the realisations per tonne for the company moved down from Rs 4519 in Q3CY12 to Rs 4100 in Q3CY13. Its EBITDA margin declined from 24 per cent to 13 per cent on a yearly basis, while the EBITDA per tonne stood at Rs 522 for the said quarter. In the period, the company also commissioned a bulk packing terminal of 1 million tonne capacity at Mangalore, Karnataka.

As regards the valuations, the stock is currently trading at a TTM PE of 23.27x. The decline in infrastructure and construction activities due to an extended monsoon and a sluggish economy is the main cause for the contraction in demand for cement. Considering the overall scenario of the cement sector and the company, we recommend exiting this counter at this juncture.

Action Construction Equipment

I am holding 2000 shares of Action Construction Equipment (ACE) purchased at Rs 11.54 per share. What should my next step with respect to these be?
- Anup M, Via Email

BSE/NSE Code 532762/ACE
Face Value Rs 2
CMP Rs 13.12
52-Week high/low Rs 29/Rs 8
Current Profit/(Loss) 13.69 per cent

Action Construction Equipment (ACE) is India’s leading material handling and construction equipment manufacturing company, with over 50 per cent market share in the mobile cranes segment. ACE has a consolidated presence in all major infrastructure, construction, heavy engineering and industrial projects across the country. In addition to mobile cranes, ACE also offers mobile/fixed tower cranes, loaders, vibratory rollers and truck mounted cranes, to name a few.

However, at the current juncture, the slowdown in the economy is largely reflected in the financial performance of this company. For the quarter ended September 2013, its topline declined by 9.33 per cent to stand at Rs 142.83 crore as against Rs 158.57 crore reported during the same quarter last fiscal. The bottomline too fell by a whopping 67.88 per cent YoY to stand at Rs 0.53 crore as against Rs 1.65 crore reported during Q2FY13. What is more disappointing is that the company’s margins have declined, coming below the one per cent mark at both the operating and net profit levels.

On the valuations front, the stock is trading at a PE of 21.24x. Any potential improvement in the performance of this company is directly linked to infrastructure development in the country, which is yet to take off in the way it needs to. Considering that you are currently sitting on some amount of profit, it is best to exit the stock.

Welspun India

I am holding 200 shares of Welspun India for the past three years. I had bought these at Rs 68 per share. What is the future of this scrip? Please guide me with regard to my next step on these.
- Akash, Via email

BSE/NSE Code 514162/WELSPUNIND
Face Value Rs 10
CMP Rs 68
52-Week high/low Rs 83/Rs 48
Current Profit/(Loss) At par

Welspun India is one of the top three home textile manufacturers globally, and the largest home textile company in Asia. With manufacturing facilities in India and a distribution network in 32 countries, it is the largest exporters of home textile products from the country. The company is a supplier to 14 of top 30 global retailers, and has marquee clients on its list, such as Wal-Mart, J C Penny, Target and Macy’s, to name a few. It also owns leading brands such as Christy and Hygro Cotton, among others.

For the quarter ended September 2013, the company posted a strong financial performance. Its revenues grew 23 per cent on a YoY basis for the period to stand at Rs 1219 crore, as against Rs 994 crore in during the same quarter last year. The growth in the revenues was primarily due to strong volumes growth in towels and rugs. The EBITDA margins too improved to 22.8 per cent from 17.5 per cent in Q2FY13. The finance costs of the company have increased by 22 per cent on a YoY basis due to additional debt on account of consolidation of its captive power plant.

One point that needs to be highlighted is that the company has changed the method of providing for depreciation for this quarter. This has resulted in an additional one-off depreciation of Rs 463.1 crore for the period upto June 30, 2013, which has been provided for in the current quarter. The change in methodology has also resulted in an increase of Rs 4 crore in the depreciation cost for the September quarter, which has contributed to a 15 per cent increase in depreciation in the period. The Profit After Tax (adjusted for the one-off depreciation) has doubled to Rs 116.6 crore as compared to Rs 58.6 crore in Q2FY13.

At present, we see that the demand for the products of the company is reviving. Hence, we suggest that you hold the stock for some more time.

Asian Paints

Is it better to sell Asian Paints at the current market price, or should I continue to hold the stock for some more time?
- Hitesh Parsawala, Via Email

BSE/NSE Code 500820/ASIANPAINT
Face Value Rs 1
CMP Rs 533.50
52-Week high/low Rs 562/Rs 373
Current Profit/(Loss) N.A.

Asian Paints is one of the renowned players in the paints segment. The company operates in 17 countries and has 25 paint manufacturing facilities in the world, servicing consumers in over 65 countries. Its products include a range of ancillaries, products for automotive applications, decorative paints and a product range for industrial purposes.

As regards its financial performance, the company’s results for the quarter ended September 2013 surpassed the street’s expectations. Its consolidated topline increased by 18.1 per cent on a YoY basis to stand at Rs 3084 crore for Q2FY14. This increase in topline can be attributed to double-digit volume growth in the domestic decorative business. The operating profit margin grew by 174 basis points on a YoY basis to stand at 15.6 per cent. This was due to the better realisations in the quarter and a decline in the prices of titanium dioxide, a key raw material. The bottomline has shown up well too, growing 36.7 per cent on a YoY basis to stand at Rs 327 crore.

The company had carried out price hikes to the tune of one to 1.8 per cent on August 1 and September 1 respectively in its decorative paints business. This was done to offset the impact of INR depreciation, which had pushed up the cost of raw materials. However, the industrial paints and automotive coatings businesses continued to be affected by the prevailing economic slowdown.

The company is trading at a TTM PE of 43x. We suggest that you hold the counter for one more quarter as the effects of the festive season will be clear only in the Q3FY14 numbers.

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