The Hindu Business Line : Prism Cement hurt by lower realisation and higher costs

Higher power and fuel expenses and competition by way of higher despatches by larger competitors have hurt the financial performance of Prism Cement for the December quarter.

Prism Cement posted a 50 per cent decline (on a Y-o-Y basis) in net profits for the quarter ended December 2008 on lower sales revenues and significant increase in expenses. The company’s net sales were down by 6 per cent and the power and fuel expenses spiked by 29 per cent.

Flooded by capacities

Prism Cement operates in the northern region, a market flooded by capacities of larger players such as Ultra Tech Cement, Grasim Industries and ACC.

With new additions from existing players and cheaper imports from Pakistan, competition has been intensive for Prism over the last quarter.

Though clinker despatches by the company were higher by 5 per cent and cement despatches up by 8 per cent in the quarter, the realisation was lower, thus providing little support in revenue growth. Prices were poised at Rs 220-225 a bag from Rs 230 levels in the last quarter.

Cost factor

Higher expenses too, resulted in denting net profits. Selling and administration expenses were up 41 per cent; power, fuel and oil expenses spiked on relatively higher crude oil and coal prices in the last quarter.

Operating profit was down 37 per cent (Rs 58.99 crore versus Rs 94.05 of December quarter 2007) and the operating profit margins too shrivelled.

Higher interest expenses on account of ongoing brownfield expansion at Satna, Madhya Pradesh, and greenfield plant at Andhra Pradesh too pulled down profits. These projects are likely to come on stream only by 2011. Until such time the interest costs could leave a burden on the profits.

Net profit declined sharply (by 52 per cent), dragging net profit margins to 14 per cent from 28 per cent a year ago.

Commodity respite

The coming quarter could, however, provide some hope for the company on the cost front what with prices of commodities such as oil and coal showing some respite.

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