Madras Cements Ltd.

Source: Religare Technova05/07/2011 Madras Cements expects bad times to continue

Type: Corporate

Cement manufacturers are facing problems on all fronts it seems. There has been lower demand on the one end and oversupply on the other. The companies are expected to face a torrid time this fiscal as there is already a capacity of 100 million metric tonnes, and with capacity additions continuing, the industry surplus is expected to rise till 2013. Madras Cements Ltd, a mid-level cement firm in India, is in a tight spot too as it derives 90% of its sales from the southern region because prices are continually under pressure and the surplus capacity situation is set to continue. "With the capacity growth outstripping demand in the southern region, prices would continue to be under pressure, The cement industry would continue to experience lower capacity utilisation levels. Inflation would also affect the costs of various inputs of production and distribution, thereby affecting realisation,"Madras Cements has said in its recent annual report. . However, the expected rise to continue until 2013 is an optimistic assumption that has been made by presuming a demand expansion that at least equals the anticipated growth in the countrys gross domestic product of around 8%. However, as the demand growth has halved to 5% compared with the past three years, concerns are building up within the industry that the worst is yet to come. The Madras Cements stock has been under pressure throughout the past year, losing 23% this year, and hit a 52-week low at INR 80 last month. The scrip for the company closed at INR 80.75 (down 1.40%) with the intra day high and low being INR 82.40 and INR 80.75. The total traded quantity for the day stood at 15,000 shares.

Focus on keeping logistics costs down as company enters new markets

CHENNAI, MAY 24: Madras Cements' net profit in the fourth quarter of 2011-12 has jumped by 55 per cent as compared with that of the corresponding quarter in the previous year.

The company has announced a total dividend of Rs 2.50 a share of Re 1 for the year. The cement manufacturer attributed the performance to managing power costs, fuel cost and targeted marketing optimal mix of markets and products, said its Chief Executive Officer, Mr A.V. Dharmakrishnan. Over 112 MW of captive thermal power plants have helped keep power cost down, inspite of the power shortage in Andhra Pradesh and Tamil Nadu where its factories are located. The company also managed to source imported coal at competitive prices. Financial costs are also relatively low at about nine per cent as Madras Cements opted for long term fixed rates. However, these will be reset towards the end of the year, he said. During the quarter, power and fuel costs have gone up by about 24 per cent; and transportation and handling costs were up by 50 per cent. Mr Dharmakrishnan, who was designated CEO recently, was earlier the Executive Director (Finance), said keeping logistics costs down as the company enters new markets and brand building in these markets are the immediate concerns. Markets in the West and East are showing strong growth. Transportation of materials in and out account for nearly one-fourth of the company's turnover, he said. Logistics costs have doubled to over Rs 2 a tonne a kilometre. Reining in the costs in the face of the fuel price hike and freight costs will be a challenge. Builders also want the cement delivered in a matter of hours rather than days. The company hopes to set up grinding units and packaging units closer to markets to expand market reach.
INFRASTRUCTURE

The company will commission a 20-MW thermal power plant at its Ariyalur factory and a 25-MW thermal power plant in RR Nagar by June, both in Tamil Nadu. This will take the total installed capacity to 157 MW making it fully self sufficient in power. The company has a total cement production capacity of about 12 million tonnes distributed across five factories three in Tamil Nadu and one each in Andhra Pradesh, at Jayanthipuram, and Karnataka, at Mathodu.

At the Ariyalur unit, Madras Cements will commission a cement grinding unit in June which will add 2 million tonnes to the present capacity of 10.49 mt a year. At the RR Nagar factory, the cement grinding capacity is being expanded to 260 tonnes an hour from 210 tonnes. The Rs 110-crore project will be commissioned in March next year. At the Salem grinding plant, the capacity is being expanded to 230 tonnes an hour from the present 90 tonnes. This facility will be started in the current year.
ANNUAL PERFORMANCE

For the year ended March 31, 2012, Madras Cements' net profit jumped more than 80 per cent over that of the previous year to Rs 385.11 crore (Rs 210.98 crore) on a total income of Rs 3,278.20 crore (Rs 2,636.04 crore). Cement sales increased to 75.50 lakh tonnes (72.55 lakh tonnes. On the NSE, the company's shares closed two per cent lower at Rs 136 (Rs 138.90).