India Cement's net profit hit by rising production and transportation costs

Rising production costs and subdued demand in the southern markets has resulted in India Cements reporting a 31 per cent decline in FY13 net profit.

Net profits (consolidated) fell to INR178.62 crore for the fiscal, down from INR259.86 crore last year, while revenues rose nine per cent to INR5159.47 crore from INR4631.04 crore last year.

According to N Srinivasan managing director of India Cements, profit took a hit due to an increase in cost of diesel and freight charges and high cost of power. The company is facing acute shortage of power in Andhra Pradesh and is being forced to buy power at high costs. This is despite India Cements having sufficient power generation capacity in Tamil Nadu as state rules do not permit the company to export power from its captive unit in Tamil Nadu for use in Andhra Pradesh.

Transportation and handling costs surged 30 per cent as the company sold more cement in Maharashtra and eastern parts of the country. As consumption of packaging material increased, other expenses jumped 24 per cent  to INR162 crore.

Due to the weak pricing environment, the company was not able to fully pass on the rise in input costs to consumers, leading to a 4.7 percentage points contraction in EBITDA margin to 14.7%. India Cements has four cement units in the state of Andhra Pradesh where capacities are high and excess supplies are weighing on cement prices. Even though prices rose from historically low levels in May, management is uncertain about the sustainability of these hikes.

Next year, however, the company plans to increase capacity utilisation from 71 per cent to about 75 per cent, hoping to cater to a seven per cent increase in demand that the industry expects. A 25MW power plant is also close to commissioning in Andhra Pradesh, and a further 25MW set for commissioning in June.