Mumbai: Shree Cement Ltd posted a surprise net loss of Rs71.37 crore for the Jan-March quarter due to its depreciation policy, analysts and officials said.
The company had posted a net profit of Rs240 crore in the comparable year-ago quarter.
A Reuters poll of brokerages had forecast a net profit of Rs185 crore for the quarter.
“This (net loss) is due to the company’s accelerated depreciation policy,” Rupesh Sankhe, analyst at Angel Broking, said, explaining the company factors in a higher depreciation on plants commissioned.
Shree Cement had commissioned a captive power plant and added clinker capacity during the quarter, he added.
During the March quarter, it had commissioned a 1.20 MTPA clinker unit in Rajasthan, a 1.80 MTPA clinker unit in Uttarakhand, green power projects totalling 46 MW and a 50 MW thermal power plant in Rajasthan, according to a statement to the Bombay Stock Exchange.
“Now, what has happened is the depreciation has increased from (Rs)55 crore last year to (Rs)280 crore, because of commissioning... (of additional capacity),” Shree Cement managing director HM Bangur said told Reuters.
The Rs280 crore depreciation for the quarter is against Rs570 crore for the whole of last year, he said.
“Our policy is written-down value on income tax basis, and if power plants are there, government of India allows us to charge very heavy depreciation in the first year itself. That has resulted in very high rates of incidence of depreciation,” he added. According to Bangur, if the company were to consider normal depreciation, the net profit would have been around Rs180 crore, rather than a loss of Rs71.37 crore.
The company has also made a one-time provision of Rs44 crore as a precaution for a legal issue.
Shree Cement is also planning to hike production capacity to 15 million tonnes by the end of the year.
“Yes, there is some capacity addition (plans). ...it is 12 million tonnes (as on FY10) and by the end of the year (FY11) it would be increased to 15 million tonnes,” Bangur said.
The capacity addition would take place at its unit in Rajasthan and would be funded through internal accruals.
The cement dispatches were at 10.26 million tonnes during the March quarter, up by 10%.
There was no pricing pressure, as during the quarter prices were up 5% compared with a year ago, he said.
The next two quarters are expected to be bad for the cement industry. “There will be pressure on the prices as well as cost pressure, and utilization will go down on lower demand,” Sankhe said.
Shares of the company closed up 5.01% at Rs2,143.85 in a strong Mumbai stock market.