The largest cement company in south India, India Cements with a group capacity of 8.8Mt, has posted strong numbers after a long time. For the first time since FY01, the company is set to make profits for FY06. Better still, the company’s performance is likely to improve further as the cement industry has revived in its key southern markets, on the back of a robust 25 per cent consumption growth during FY06. The reduction in sales tax in January 2006 and efficiency improvement would help growth in earnings.
The company saw a turnaround in its December FY06 quarter results. After a net loss of Rs 33.31 crore in the previous December quarter, the company clocked a net profit of Rs 7.22 crore with its debt restructuring in place. This was on the back of 30 per cent y-o-y growth in net sales to Rs 411.87 crore. The good numbers can be attributed to the strong demand growth seen in the southern markets after a lull in FY05, on the back of a good monsoon, increased focus on irrigation and rural road projects.
Analysts feel that with high borrowing costs behind it and its key markets seeing sustained demand growth, the company is set to see good times in the coming two years. India Cements has seen 35 per cent growth in net revenues in the nine months ended December 2005. The fall of 5.5 per cent in interest costs was due to a reduction in total debt through issuance of $10 million GDS and corporate debt restructuring (CDR)scheme. For the December FY06 quarter, the company’s operating profit rose 55 per cent to Rs 46.78 crore. Moreover, the interest cost declined 35 per cent to Rs 29.57 crore.
"Currently, the capacity in south India is about 46Mt. While last year (FY05), consumption had dipped to 31Mt, the gap has been bridged by demand growth in FY06. The uniform 14 per cent sales tax now applicable in the southern markets, unlike the dual sales tax in the past, has also helped an already ready-for-take-off scenario. India Cements, thus, clocked 35 per cent growth in sales so far in this financial year. Moreover, nobody is adding much capacity in the south. The current capacity utilisation is nearly 100 per cent in Tamil Nadu, Kerala and Karnataka, while it comes down to about 90 per cent if Andhra is included. Even if demand does not outstrip supply for another year, the existing situation is good enough," said an analyst with HDFC Securities.