India Cements Q3 profit takes huge hit on rise in variable costs

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Published: February 12, 2019 3:50:51 AM

This reduction in NPR, together with increase in input costs, has resulted in a lower Ebitda Rs 139 crore for the quarter compared to Rs 171 crore in the same quarter previous year, almost a drop of 19%.

India Cements Q3 profit takes huge hit on rise in variable costs (Representative Image)

Hit hard by 9% increase in variable costs, coupled with a 3% drop in net plant realisation due to capacity overhang in the southern markets, India Cements has reported a 79% drop in its net profit for the third quarter ended December 2018 Rs 3.13 crore compared Rs 15.24 crore in the same quarter last fiscal. The variable cost has gone up by nearly 9% on year-on-year basis and by 1% on the sequential basis. This reduction in NPR, together with increase in input costs, has resulted in a lower Ebitda Rs 139 crore for the quarter compared to Rs 171 crore in the same quarter previous year, almost a drop of 19%.

A senior company official said that Ebitda margin declined sharply to 11% during the quarter against 14% in the same quarter last fiscal. India Cements’ total expenses stood at Rs 1,317.44 crore against Rs 1,201.51 crore, up 9.64%. The revenue during the quarter grew 8.5% to Rs 1,316.30 crore compared to Rs 1,213.08 crore in the same quarter last fiscal due to increase in volume.

“Despite higher volumes, we have lost nearly Rs 200 a tonne (Rs 57 crore in overall) due to sharp increase in petcoke, coal as well diesel prices. Moreover, with fierce competition to gain market share by other players, the company had to undergo price pressure, which also impacted our margins,” said N Srinivasan. “It was a challenging and tough quarter to deal with,” said N Srinivasan, vice-chairman and MD.

At a press conference here, he said: “We hope Q4 will be much better owing to decent price hike, increased capacity utilisation as well as softening of raw materials prices. We hope to sustain the price hike in the coming quarters, which in turn will help the company to post better results. I am optimistic on the growth potential and decent results in the coming quarters. We hope to achieve full capacity utilisation in the coming fiscal and 2020-21 fiscal will see shortage of commodity across the country as demand set to perk up exponentially.” The company, among others, has increased the price per bag by Rs 30, which will enable it to post decent margins in Q4, he added.

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S Vijaraghavan, research head, Spark Capital, said: “Though the company could sell more cement during the quarter, however, it could not achieve the desired NPR due to capacity overhang. There was a severe competition in the southern markets, particularly in the core markets like Tamil Nadu and Kerala. Every manufacturer wanted to increase their market share, which led to price pressure. Apart from this, there was a 9% jump in the variable costs, particularly fuel costs, which also eroded the profit margins of the company further.”

Srinivasan further said that the company is temporarily moving away from unprofitable markets such as eastern region due to higher logistics cost as well as low price. However, India Cements will return to these markets once the price stabilises. “We are bullish on the growth prospects with Andhra Pradesh and Telengana expected to create huge demand for cement given their ongoing government projects. Prices are also set to increase in other southern markets.”

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