ACC faces enormous margin squeeze

ACC faces enormous margin squeeze
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First Published: Tue, May 20 2008. 02 20 PM IST
Updated: Tue, May 20 2008. 02 20 PM IST
Reuters
New Delhi: India’s leading cement maker, ACC Ltd is facing enormous pressure on its margins because of rising input costs and will have to raise prices after a freeze ends in about three months, company officials said.
Core margins had fallen 4% in the March quarter and would see more erosion in April-June, they said on Tuesday.
Swiss cement maker Holcim has around 41% , stake in ACC that had earlier this month said it would hold prices for 2-3 months after the government asked cement firms to help contain inflation running at 3-1/2-year highs.
“Given the current situation in the industry, ACC is under tremendous pressure as costs are going up... not incrementally, but leap-frogging,” Managing Director Sumit Banerjee said at a news conference.
He said ACC, which has the single largest capacity for cement in India, would raise prices after the freeze period. “If we can, we will,” Banerjee said.
Chief Financial Officer Onne van der Weijde said core margins were being eroded by 1% point each month.
Core margins, which exclude interest and taxes paid and depreciation and amortisation incurred, were 26% in the first quarter ended March, he said, adding they fell despite a 9.5% rise in sales.
“For the last 12 months, my factory-gate prices are falling and costs are increasing. The next nine months will be no different,” Weijde said, adding cost had risen 18-20 % in the 12 months to April.
“It is quite clear margins in Q2 will be under further pressure,” Banerjee said.
ACC’s planned capacity expansion to 30 million tonnes by end-2010 from 23 million tonnes now was on track, but future plans were a “question mark,” Banerjee said, as annual returns were not enough to cover expansion costs.
“The situation is not very healthy for investments to flourish,” Banerjee said.
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First Published: Tue, May 20 2008. 02 20 PM IST