Cement firms cut costs to boost profits amid slump

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It was tough going for the cement companies in the January-March quarter, as demand remained subdued in what is usually the peak season. But they fell back on operational efficiencies to report better-than-expected profits.

Ambuja Cements and UltraTech Cement, two of the biggest players who have announced fourth quarter earnings, showed improved margins and profits. Analysts expect most of the north India-based cement firms also to perform well.

“Although macro-economic conditions remain challenging, construction activity is expected to pick up after the elections. Cement demand is likely to show modest growth soon,” said Ajay Kapur, deputy managing director and chief executive officer at Ambuja Cements.

Ambuja, a unit of Swiss cement maker Holcim, reported a 6.1 per cent jump in March quarter earnings before interest, taxes, depreciation and amortisation from the year-ago period at Rs 587 crore. Net profit increased 6.6 per cent from the year-ago period to Rs 520 crore.

The company attributed it to improved efficiencies brought about through cost optimisation and continued focus on commercial excellence, which helped improve operating margins.

Analysts say the long-term cement demand is likely to grow at 8 per cent in line with gross domestic product growth.

Housing demand and infrastructure development will continue to be the value drivers of growth.

“While softening of imported coal prices provided some relief in the March quarter, the impact got negated by the rupee depreciation. Optimisation of the fuel mix and other initiatives helped maintain costs almost at the previous year’s level,” Ultratech Cement said in its earnings statement.

The organisation reported a 15.4 per cent increase in profit after tax compared with the year-ago period which was at Rs 838 crore.

Domestic cement organisations continued to reel under rising input and logistics costs through the year, as railway freights rose on the back of a series of diesel price hikes.

Analysts said cement producers reported better profits by focusing on operational efficiencies and riding lower raw material costs.

Rajesh Kumar Ravi, an analyst at Karvy Stockbroking, said the earnings improved as raw material costs remained stable through the quarter.

“Overall 2015 is likely to be a better year for the cement organisations, as prices have bottomed out and are expected to improve after monsoon,” he said.

Ravi Sodah, an analyst at Elara Capital, said cement organisations should see a revival in demand after the national elections.

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