Mumbai: UltraTech Cement, India’s biggest cement producer, aims to spend $1.8 billion to add 9 million tonnes of new capacity over the next three years as a rapidly growing domestic economy boosts demand.
India’s 270-million-tonne capacity cement market, the world’s second-largest, has been growing at 10-12% over the past year, driven by demand from infrastructure and property projects in Asia’s third-largest economy.
UltraTech and the Indian units of Swiss cement major Holcim each control a fifth of the Indian market, while other global majors including LaFarge, Vicat and Mexico’s Cemex are looking to expand their presence.
UltraTech, part of the diversified Aditya Birla group, will spend Rs56 billion ($1.2 billion) to set up clinkerisation plants in central and south India, the company said in a statement on Thursday.
It is already spending Rs26 billion for grinding capacity in western India and on waste heat recovery systems and packaging terminals across India.
The total spend, which will add 9.2 million tonnes of cement capacity, will be funded from internal accruals and debt.
UltraTech became India’s biggest cement producer with 49 million tonnes capacity after it received regulatory approval earlier this week to absorb the cement business of a group firm.
In April, it acquired Dubai’s ETA Star Cement Co for an enterprise value of $380 million, giving it another 3 million tonnes capacity and direct access to markets in the Middle East and Bangladesh.
UltraTech posted a 42% slump in quarterly profit on Thursday, but was ahead of market forecasts, which helped shares recover losses.
The company said April-June net profit fell to Rs2.43 billion from 4.18 billion a year earlier, following an about 20% fall in cement prices and a rise in raw material and fuel costs.
Net sales dropped to Rs17.9 billion from 19.53 billion.
A Reuters poll of 14 brokerages had estimated quarterly profit at Rs2.2 billion on net sales of Rs17.8 billion.
“Although prices remained flat sequentially, there was a sharp fall compared with Q1 of FY10,” UltraTech said.
The company was also forced to buy coal at higher market prices following a reduction in subsidised supply by the government.
Freight costs ran up 18% from last year, raw material costs rose 14% in the quarter, while power and fuel costs increased 8%, the company said.
UltraTech expects pressure on prices and margins to continue in the short term, but said cement demand is likely to grow 10% through the year.
At 0817 GMT, UltraTech shares, valued by the market at $2.3 billion, were up 0.3% at Rs858.65 in a flat Mumbai market, after having fallen as much as 1.6% earlier.
The stock has slipped 6.5% so far in 2010, compared with a 3% rise in the main index.