Cement: Margins may shrink despite higher prices

Leading cement companies are expected to report a fall in operating profit margins in the March 2012 quarter on a year-on-year basis despite higher realisations on a pertonne basis.

Input costs are once again expected to be a cause for concern as freight and forwarding costs are expected to stay high. The hike in rail freight rates, effective from the first week of March, would add nearly 20% to cement companies’ costs.

Though international coal prices were at the $105-per-tonne levels at the end of FY12, and have shown signs of easing, its impact could be minimal as the rupee has also been weak.

However, realisations are expected to be 12-14% higher in the March quarter y-o-y, as the peak construction season is under way. But that is not expected to fully cover the costs.

In the case of the Holcim-controlled ACC, despatches grew 7.9% to 6.7 million tonnes in the first quarter of calendar year 2012. The company follows the calendar year for its financial accounting.