During the December 2007 quarter, the Indian cement sector reported a moderate growth in sales and profits over the robust growth seen during the corresponding quarter of the previous year, according to a report by the Economic Times of India. Growth in sales was more a function of better realisation than higher production. This also resulted in improved profitability.
Sales grew 17% on top of the 48% jump a year ago. Net profit rose by 30% over and above the 202% jump seen during the third quarter of the previous year.
Sales are now at INR11,738 crore and profits at INR1,770 crore. In terms of production, the industry witnessed a moderate growth of 3.6% YoY, indicating that the rest of the sales growth is on account of better realisation.
The result excludes financials of Ambuja Cement, which has shown a steep decline of 97% in profit because of certain prior period adjustments, and hence does not correctly reflect the performance of the company during the quarter.
Operating costs rose at a slower pace compared to the growth in topline. As a result, operating margin expanded by 450 basis points (bps) to 34.8% from the year-ago level. Commissioning of additional capacities has resulted in higher depreciation and interest outgo.
Interest expenses rose 28% during the quarter. Depreciation gradually increased by 10% in Q1 2008 and by 19% in Q2. In Q3, it went up by as much as 58%. Despite this, net margin expanded by 150 bps to about 18.7%.
Among the regions, the sector witnessed strong demand in western, northern and southern regions during the third quarter. In the western region, cement consumption rose by 16%, while each of the other two regions reported 11% growth.
Among the individual companies, ACC, Grasim and Ultratech recorded an improvement of more than 300 basis points in their net margins. Reduction in the core expenditure such as raw material and decline in wages, apart from higher other income, led to this improvement.