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Cost cutting, better prices help ACC post 78 per cent profit

NetScribes / Kasturirangan P

Cement major ACC's 78 per cent growth in operating profit in FY01 was brought about by a robust increase in price realisation and strategic cost cutting in operations. The company posted a net profit of Rs 474.8 million for the full year on a sales turnover of Rs 29,590.3 million.

Like many others in the industry, ACC was largely aided by an artificial price arrangement under which manufacturers colluded to keep prices at a high by cutting back on supply.

Substantiating the company's efforts, ACC's managing director TMM Nambiar said, "While sales realisation did improve, we also effected improvements in operational efficiencies, despite various increases in costs of major inputs that are beyond our control."

Largely due to the increase in sales from the Kymore, Madukarrai and Chanda units, ACC was able to register a 2 per cent growth in volumes. Besides, the artificial price arrangement enabled the company to realise Rs 2,891 a tonne during the fiscal to March 31, 2001, a 6.4 per cent improvement on the previous fiscal's figure.

The company managed to bring down power and staff costs by 12 per cent and 7.4 per cent, respectively. While the former was achieved through efficiencies at the plant level, the latter was a benefit accrued through a VRS offered at the beginning of last year. Over the last three years, the company has reduced its workforce by some 4,000 employees to about 8,000 at present.

The only costs that increased during the fiscal were freight costs, which is a major portion of the overall costs. The increase - by 5.3 per cent to Rs 3,672.8 million - was on account of an increase in diesel costs.

Looking forward, Nambiar said that last year's negative growth stemmed largely from poor demand for cement. He said that the slowing demand growth and the capacities additions in 2001 would aggravate the oversupply situation.

Ramnath S of Taib Securities said, "With ACC's new 2.6 million tonne plant at Wadi, the southern market will face real pressure. Although the market has been very disciplined in terms of price, clearing 2.6 million tonnes will be a cause for concern to ACC."

With the prices expected to come under pressure, ACC would be concentrating on bringing down costs, increasing throughput and de-bottlenecking its units to maximise profits. Besides, its decision to concentrate on the cement business and divest its stake in non-core businesses like Float Glass India would enable it to consolidate its business.

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