Chennai: Chennai-based India Cements Ltd.’s fourth-quarter and full-year profits rose but missed analyst expectations as sales growth was offset by rising wages and soaring power costs due to coal shortages that forced the company to continue importing despite an unfavourably weak rupee.
India Cements shares fell after the announcement of the results in Bombay Stock Exchange, ending Wednesday 4.2% lower at Rs 87.25 a share, while the Sensex was flat at 17,151 points.
“Energy and transportation are our main costs and we are unable to predict their direction,” said India Cements’ managing director Narayanaswami Srinivasan, who is also the president of the Board of Control for Cricket in India—the governing body for the sport in the country, addressing reporters at a press conference in his Chennai headquarters.
The company, which owns the Indian Premier League cricket franchise Chennai Super Kings, posted a net profit of Rs 293 crore for the year ended 31 March, four times last year’s weak figure of Rs 68 crore. Fourth quarter profits rose 18% to Rs 65 crore.
“India Cements’ results disappointed as the company didn’t shown significant increase in realization (profits),” said a Mumbai-based analyst who has a “neutral” rating on the stock and didn’t want to be named. “The company’s costs have also not come down.”
The equity researcher added that the expected ruling from the Competition Commission of India(CCI), an anti-trust body, on whether cement companies have colluded to push prices higher, will also continue to weigh on the sector and hence the company. No names have been mentioned but any such findings, expected later this month, could mean penalties for the companies.
India Cements’ full-year standalone net sales rose 20% to Rs 4203 crore and jumped 12% to Rs 1116 crore in the January-March quarter.
While the profit numbers were lower than average analysts’ forecast for net profit of Rs 302.37 crore for the full year and Rs 85.25 crore for the quarter, sales marginally beat expectations of Rs 4169.26 crore for the year and Rs 1154 for the quarter, according to Bloomberg estimates.
Looking ahead, analysts expect excess capacity to keep the lid on prices and cost pressures to drag on profits.
India Cements, which has three factories in Tamil Nadu and four in Andhra Pradesh, saw capacity utilization for the year at 67%, lower than the 69% seen a year earlier, amid sluggish demand.
“Lower traction in infrastructure and real estate segments led to muted growth in cement demand during 2011-12,” said Ajay Srinivasan, director, CRISIL Research in a note this month.
The excess capacity in the industry will keep prices flat even as demand is forecast to rise 8% in 2012-13, CRISIL’s Srinivasan wrote.
Besides sluggish demand and excess capacity, the continued weakness of the rupee also remains a worry for India Cements. This year the company imported 60% of its coal, higher than the normal 55-58% to fire up its cement kilns, even as supplies shored up from Andhra Pradesh coal mines.
India Cements’ woes mirrored those of its competitors, such as ACC Ltd, Ambuja Cements andUltraTech Cement Ltd -- the country’s biggest cement firm --, that are also facing a squeeze from higher fuel and transportation costs.
On a bright note, the inauguration of India Cements’ Tamil Nadu power plant could provide a much-needed crop to the company’s costs. However, the March launch of India Cements’ $20 million coal mine in Indonesia has been once again pushed back by 3-6 months, company executives said.
Reuters contributed to this story.