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| Prism Cement: Profits pressured | |
| Shobhana Subramanian & Varun Sharma / Mumbai January 7, 2009, 0:10 IST | |
 Net profits at the Rs 876 crore Prism Cement have halved to Rs 31 crore in the December 2008 quarter. If the first six months to December 2008 are considered, the drop has been worse at 60 per cent.
The culprit has been high costs — including those for freight and fuel — which have resulted in the operating profit margins coming off sharply by 1350 basis points to 26 per cent in the December quarter. In fact, thanks to reasonably good volumes — up 8 per cent —Prism has been able to arrest the fall in the top line to just 6 per cent at Rs 215 crore; net realisations came off by 10 per cent.
The company has managed to sell more in rural areas where the demand from the housing sector remains relatively robust though, of course, these sales don’t fetch very high realisations. Prism caters mainly for the markets of Uttar Pradesh, Madhya Pradesh and Bihar through its plant at Satna, MP and is a small player with a capacity of 2.5 million tonnes.
However, even that could change over the next few months, say industry watchers, who add that margins may remain under some pressure for a couple of quarters. Indeed, until the economy gains momentum, sales of cement across the country are expected to slow down — the real estate space, which consumes nearly half the cement produced in the country — needs to revive before cement sales pick up.
According to analysts, demand could continue to be subdued in the northern and central regions of the country with supply outstripping demand — an estimated 20-25 million tonnes of fresh capacity is expected over the next 8-12 months.
Between April and December 2008, despatches by cement producers have risen just 4 per cent compared with the corresponding period of 2007 (source: CMA). As such, Prism could be hard pressed to match its 2007-08 performance of a 14 per cent revenue growth and a 25 per cent rise in net profit in the current year.
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