MUMBAI Cement producers ACC Ltd (ACC.NS) and Ambuja Cements (ABUJ.NS) reported a fall in quarterly profit, hit by a one-time charge, with higher costs of fuel and transportation also squeezing margins even as sales volumes rose.
Demand for cement in India, the world's largest producer after China, is expected to rise 7-8 percent over this year as lower interest rates help kickstart construction activity, analysts said, but rising costs will force companies to increase prices to protect margins.
Cement makers are also under pressure ahead of a ruling from the Competition Commission of India (CCI), an anti-trust body, on whether companies have colluded to push prices higher. No names have been mentioned but any such findings, expected later this month, could mean penalties for the companies.
ACC and Ambuja, both 46 percent owned by Switzerland's Holcim (HOLN.VX), the world's second-largest cement producer, along with rivals Jaiprakash Associates (JAIA.NS) and Ultratech (ULTC.NS) account for around 50 percent of the cement produced in India.
Ambuja, India's No. 3 cement producer, reported a 23 percent fall in net profit to 3.12 billion rupees for the first quarter ended March, compared with 4.07 billion rupees a year earlier.
The drop was mainly due to a retrospective change in depreciation on captive power plants which resulted in an additional charge of 2.89 billion rupees.
Net profit would have been 5.07 billion rupees under the earlier method, the company said, which would have exceeded the 4.5 billion rupees expected by analysts, according to Thomson Reuters I/B/E/S.
"Continuity in overall current demand would be key to maintain the current momentum," Ambuja said in a statement. "In spite of improved realisation, cost push from higher energy cost and rail freight increase is expected to keep the profit margin under pressure."
Ambuja's net sales rose 19 percent to 26.3 billion rupees backed by a 10 percent rise in volumes and improved prices, the company said.
ACC, India's No. 2 cement producer, reported net profit of 1.52 billion rupees for the same period compared with 3.5 billion rupees a year earlier - also impacted by a retrospective change in depreciation method.
Net profit would have been 3.8 billion rupees under the earlier method, the company said.
The figure was still well below 4.3 billion rupees expected by analysts, according to T homson Reuters I/B/E/S.
"Margins are lower on a year-on-year basis but given the volume growth and current cement prices we expect profitability to increase," said Rajesh Kumar Ravi, analyst with Karvy Stock Broking in Mumbai.
ACC said it sold 6.72 million tonnes of cement in the March quarter, up from 6.16 million tonnes in the year-earlier period. Net sales rose 19 percent to 30.15 billion rupees from 25.41 billion.
Shares in Ambuja, which is valued by the market at $5 billion, closed down 0.9 percent at 164.85 rupees, whereas ACC, which has a market value of $4.7 billion, closed down 3.8 percent at 1,247.60 rupees in a Mumbai market that rose 0.6 percent.
(Reporting by Aditi Shah; Editing by Ranjit Gangadharan, Aradhana Aravindan)