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Gujarat Ambuja sees higher margins in Q3

Gujarat Ambuja Cements, India's fourth-largest cement group, forecast improved profitability in the current January-March quarter due to lower fuel and higher product prices.

In an interview, Ambuja executive director Anil Singhvi said the price of furnace oil, a key input, has declined by about 25 per cent since October.

"It will take till the third quarter for the impact to be felt. We would have been using oil purchased at higher levels in the second quarter," he said.

Singhvi did not provide details of the extent of the profit gain for the firm, which follows a July-June business year.

Its first quarter net profit fell nearly 50 per cent as crude oil prices surged to a 10-year high.

Singhvi also sees domestic cement prices stabilising around current levels after rising more than 25 per cent in key markets since last November. The price rise has attracted the attention of Indian regulators and triggered a rally in cement stocks.

Ambuja shares, a component of the Sensex, have risen 21.3 per cent since October, outperforming the main Bombay Stock Exchange index which has risen 10.26 per cent in the same period.

New plant by Dec 2001

Singhvi said the cement sector has bright, long-term potential despite a dip in growth rates this year.

"If you look at it over a period of five years, cement growth has been steady. We see this continuing due to strong demand from housing and infrastructure," Singhvi said.

Yet in the current year to March, demand should grow by only 5.0 to 6.0 per cent, down from 15 per cent last year, he added.

Ambuja is expanding capacity to meet the forecast growth in demand by investing around Rs 6 billion to build a new two million tonne plant in Maharashtra. It is expected to be completed by December.

Construction is being funded by a Rs 4-billion loan from ICICI and Rs 2 billion in internal funds.

Another plant of similar size in Andhra Pradesh is expected to be complete by next year, though Ambuja has yet to receive confirmation of sales tax benefits.

Those two units will take total group capacity to 14 million tonnes. Together with its associate companies, Gujarat Ambuja now produces around 9.5 million tonnes.

Singhvi said the two new plant should not drastically affect the demand-supply equation, which he said is inching towards balance after years of surplus supplies.

"We could achieve demand-supply balance in about one year," he said. Last year, capacity exceeded supply by around 10 million tonnes, he added.

Large surpluses, the offshoot of reckless capacity creation in the mid-1990s, had been the bane of the industry for the past three years.

He denied market talk of plans to raise funds from the market through either a convertible or equity issue.

"There are no such plans," he added.

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