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Strong demand benefits Mangalam Cement

World Cement,

A strong demand in the northern part of India has benefitted BK Birla’s subsidiary Mangalam Cement over the past few months. The peak construction season has seen cement prices rise.

There has been an increase of almost 14% in cement despatches in the northern region between January and February 2011, considerably higher than the cumulative growth for all of India during this period. This boost can be explained by the healthy recoveries in government-funded infrastructure projects and the real estate sector, coupled with dealer restocking. Consequently, in New Delhi cement prices are currently at Rs.270/bag, a near-20% increase from the end of the third quarter.

At the end of March 2010, Mangalam Cement’s installed capacity was 2 million tpa, doubled from three years earlier. The company’s production facilities are located in Rajasthan and its key markets include Rajasthan, Uttar Pradesh and Delhi. Shree Cement, a larger player in the northern region, had an installed capacity of 10.2 million tpa at the end of March 2010.

The company’s performance was negatively affected by a collapse in realisations in the December 2010 quarter. Mangalam's despatches fell by 18.6% year-on-year to 0.35 million t in the third quarter, while realisations also declined by 9.2% to Rs.3154/t. Consequently, the company’s operating profit margin plummeted to just 2.6% in the third quarter, a nearly 80% drop on a year-on-year basis, while net sales fell 26% to Rs.110.4 crore in the quarter.

Additionally, during the first and second quarters of the current financial year, the company tackled a fall in realisations and the resulting impact on operating margins. During the financial years ended March 2007 and March 2010, the company’s operational cash flow was Rs.404 crore and investments stood at Rs.264.5 crore. As a result of this, the company’s debt to equity ratio was just 0.04 at the end of March 2010.

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