UltraTech Cement, India's largest cement firm, reported a more than doubling in second quarter profits on Thursday helped by a low base, even as the company warned that high input and energy costs and a market surplus would squeeze margins going forward.
Cement demand in India, the world's second-largest producer after China, has declined in recent months on a slump in the construction and real estate industries due to high interest rates and growth moderation in Asia's third-largest economy.
UltraTech, which has installed capacity of about 52 million tonnes and hopes to increase that by over 9 million tonnes by mid-2014, warned that a surplus scenario in the Indian cement industry would likely continue for 2-3 years.
"Variable cost rose by 14% (during the quarter) because of the increase in input and energy costs. The 30% increase in the price of domestic coal, continuous rise in prices of imported coal together with escalation of freight costs... have constrained the company's performance," the firm said in a statement.
"Growing input costs will result in a squeeze in margins."
UltraTech said that net profit in the quarter to end-September stood at 2.79 billion rupees ($56.8 million) from 1.16 billion rupees a year previously. Net sales rose 21.6% over the same period to 39.1 billion rupees ($795.4 million).
Net profit and sales were however sharply lower than 6.83 billion rupees and 43.65 billion reported in the April-June quarter.
UltraTech, part of the diversified Aditya Birla Group, and major competitors ACC , Ambuja Cement and Jaiprakash Associates account for around 50 percent of India's cement market.
Shares in the firm recovered after the results to a fall of 0.5% at 0800 GMT in a Mumbai market down 1.7%, after trading down as much as 2.6% on Thursday.