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Price curbs end cement makers’ record earnings

Price curbs end cement makers’ record earnings
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First Published: Thu, Apr 19 2007. 11 31 AM IST
Updated: Thu, Apr 19 2007. 11 31 AM IST
By Archana Chaudhary, Bloomberg
Mumbai: ACC Ltd., India’s biggest cement maker, and local rivals may have ended two successive quarters of record profit because of price curbs imposed on the building material by the government last month.
ACC may say net income rose 55 % to a record Rs3.64 billion ($86 million) in the fourth quarter, compared with Rs2.35 billion a year earlier, according to the median estimate of seven analysts surveyed by Bloomberg News.
Indian cement makers conceded on 9 March to hold prices, even if input costs rise, after a row with the government over taxes and record-high cement charges. The run of record earnings may have ended with the last quarter because of the government’s stance, said Novonil Guha, an analyst at brokerage Prabhudas Lilladher in Mumbai.
“We have downgraded all cement stocks to market perform,” Guha said. “This is perhaps the last quarter that we will see record profits. In the future, we may not see such growth if prices continue to be controlled.”
Grasim Industries Ltd., India’s third-biggest cement maker, say net income rose by 79% to Rs4.7 billion, while Ambuja Cements Ltd., the nation’s fourth-biggest, say profit in the quarter rose by 22% to Rs3.87 billion.
Rising retail cement prices have been a concern for a government struggling to control inflation. Cement and cement-related products, including asbestos cement corrugated sheets used as roofing material in rural India, together have a 2.16 % weighting on the wholesale price index.
Gujarat Ambuja
ACC’s revenue probably rose to Rs16.78 billion in the quarter from Rs13.28 billion a year ago, according to the survey. Ambuja, which is scheduled to announce its earnings on 20 April, may say sales rose by 52 % to Rs14.35 billion.
The company, earlier known as Gujarat Ambuja Cements Ltd., may have benefited from higher demand and prices in the north Indian market where it sells more. Mumbai-based Ambuja last month sold a plot of land in the city for $75 million, the Press Trust of India reported.
“We expect cement companies to report high profits,” said A. Balasubramaniam, who oversees the equivalent of $5.5 billion as chief financial officer at Birla Sunlife Asset Management Co. in Mumbai. “But the stock market is not looking at this positively after the row with the government last month.”
Finance Minister
India’s finance minister P Chidambaram on 28 February increased the excise rate on cement to Rs600 from Rs400 a metric ton for cement sold at Rs190 or more for a 50-kilogram bag. For cement priced below Rs190 a bag, the tax was cut to Rs350 a ton.
The government also exempted cement importers from paying a 4 % additional customs duty and waived the 16 % countervailing duty on the material to help ensure supplies for infrastructure and housing projects.
“The biggest risk in investing in the Indian cement sector arises from government policy, which is currently quite adverse to cement manufacturers,” UBS Securities India Pvt. said in a note to clients on 4 April.
Grasim’s profit probably climbed on higher demand for the building material and rising income from its synthetic fibre business. Sales may have risen by 31% to Rs23.75 billion, according to the survey.
Cement accounts for almost 70 % of revenue at Grasim, which also sells fibre, sponge iron and chemicals. The company reports on 25 April.
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First Published: Thu, Apr 19 2007. 11 31 AM IST
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