Chennai: India Cements Ltd saw its third quarter profit more than double in a seasonally weak quarter, helped by an accounting change and a revival in demand in the key Andhra Pradesh market.
Still, vice-chairman and managing director Narayanaswami Srinivasan remained cautious about his forecast for south India’s largest cement maker. “We have to wait to see if this isn’t just a flash in the pan. That said, cement makers are entering the peak January-September sales season and the sentiment seems to be looking up.”
The Chennai-based cement maker posted a net profit of Rs 56.3 crore for the December quarter, more than double the year-ago quarter’s Rs 21.5 crore.
Photo by Harikrishna Katragadda
Sales from operations were 20% higher at Rs 941.5 crore despite expectations of a seasonal downswing due to north-east monsoon season in some parts of south India that slows construction activity.
The reported third-quarter revenue, however, was higher by Rs 12.79 crore as an equivalent amount was carried forward in the balance sheet under the foreign exchange monetary translation difference account and not included in the profit and loss account, the company said in a statement.
Analysts on an average had forecast a net profit of Rs 48.52 crore on a revenue of Rs 971.63 crore, according to Bloomberg estimates.
India Cements remained mostly unchanged on Bombay Stock Exchange, ending Monday 0.64% higher at Rs 94.35 a share, while the Sensex rose 0.58% to 17,707.31 points.
“In the southern states there has been no jump in infrastructure and government spending, so most of the growth has come from growth in private housing and rural demand,” said T.S. Raghupathy, executive president of India Cements, in an analyst conference call on Monday evening.
Business in Andhra Pradesh had taken a hit in the past two years due to political violence in the state.
But after a 13.7% drop in October sales, Andhra Pradesh registered a 10.8% growth in December. And the Tamil Nadu market witnessed a 24.5% rise in sales year over year, compared with a 27% drop in October. As a result, capacity utilization in the previous quarter stood at 66%, higher than the 59% seen a year earlier.
India Cements has three factories in Tamil Nadu and four in Andhra Pradesh.
Power, coal, interest and freight costs continued to weigh on third-quarter results but there could be some respite in the coming months, according to Brics Securities Ltd analyst Novonil Guha.
“India Cements has seen growth from a lower base in the previous year but pressures are easing as coal prices are coming down and the rupee is also strengthening,” said Mumbai-based Guha via telephone, pointing to lower coal import costs for cement companies.
India Cements’ profit this year has been hurt from higher cost of importing coal due to the fall in the value of the rupee against the dollar. Concerns about the debt crisis in Europe stoked demand for the dollar, which weighed on the rupee.
So the recent strengthening of the rupee is key for India Cements, which bought 67% of its coal, higher than the normal 55-60%, from overseas in the third quarter amid supply disruptions from Andhra Pradesh coal mines due to violent campaigns in support of a statehood for the Telangana region.
The company confirmed delays in the inauguration of its Tamil Nadu power plant that it had hoped to be up and running by December 2011. The captive power plant that will cater to the needs of the company’s Tamil Nadu manufacturing facilities is now expected to be functional in April.
Meanwhile, incessant rains have pushed back the launch of India Cements’ $20 million coal mine in Indonesia from January to after March, company executives said.