India Cements reduces fixed cost; shuts down divisions, cuts overheads

2-exclusive

With adverse industry conditions in south India, which is the stronghold for the company, affecting its margins and profitability for a few quarters now, India Cements has managed to lower its fixed costs by cutting overheads and shutting down some of its divisions.

The company has seen a challenging quarter during October to December 2017, with net profit declining 36 per cent sequentially.

India Cements has registered a net profit of Rs 152.4 million during the quarter ended December 31, 2017, a 35.6 per cent decline compared to the Rs 236.7 million during the previous quarter ended September 30, 2017. Its net profit during the quarter ended December 2016 was a higher at Rs 353.4 million. However, the company said this was not comparable considering that the company had amalgamated two of its subsidiaries, Trinetra Cement and Trishul Concrete Products, into itself in April last year.

India Cements was able to contain the loss by controlling fixed costs, which have come down on account of the closing down of the infrastructure division and partial closure of the shipping division. It had also changed the policy of accounting and all these things were counting now, said a company executive.

The total overheads on the salary account are about Rs 770 million, against Rs 1.06 billion earlier. These will stabilise at around Rs 850 million going forward. Some of this was a one-time cost reduction, added the executive.

“The company will continue to rationalise manpower costs and take policy decisions as may be necessary to reduce overall staff costs,” said the company.

The power cost has also seen a decline since India Cements’ Indonesian coal mine has started producing and the company started importing coal for its facilities in India. This had helped the company save around Rs 60 per tonne, said N Srinivasan, vice-chairman and managing director of India Cements.

The performance was primarily affected because of low demand in its stronghold, which is the Tamil Nadu market. Fuel prices went up during the period amid difficulties over using petcoke. Cement prices, which were stable during the first quarter of the year, were subject to aberrations resulting in the top line erosion by more than Rs 250 per tonne sequentially during the quarter, the company said.

India Cements’ capacity utilisation on average is around 70 per cent, especially driven by demand in north India. The company is expecting capacity utilisation in south India to rise in the next two years. It is expecting its north Indian facilities to see more capacity utilisation than the south Indian ones owing to the increasing demand in the northern and eastern parts of the country.

The net plant realisation was Rs 3,275, which was almost similar to the previous quarter. Margins dropped from 14.8 per cent to 14 per cent during the period, which has affected the bottom line.

The company said it was expecting better growth in the fourth quarter of the financial year ending March 2018, and in 2018-19 it expected double-digit growth owing to various factors, including Budget promises made by the government.

Source: BUSINESS STANDARD