Indocement plans to boost margin by cutting costs<\/p>\n
Wahyudi Soeriaatmadja, Bloomberg, Jakarta<\/p>\n
PT Indocement Tunggal Prakarsa, Indonesia's second-biggest
\ncement maker, plans to boost operating profit margin this year by
\nraising prices and using gas and cheaper coal to cut costs.<\/p>\n
Indocement, controlled by HeidelbergCement AG, Germany's
\nlargest cement maker, expects to widen operating profit margin to
\n19.1 percent of sales, Finance Director Christian Kartawijaya
\nsaid. The company posted an operating profit of Rp 836.2 billion
\n(US$88 million), or 18.1 percent of sales, last year. PT Semen
\nGresik, Indonesia's largest cement maker with about 44 percent of
\nthe market, had an operating profit margin of 15.8 percent last
\nyear.<\/p>\n
"We have raised prices by 5 to 7 percent and plan to raise
\nthem further so it would be as much as 15 percent higher this
\nyear," Kartawijaya said in an interview in Jakarta on May 28.
\nIndocement controls 31 percent of Indonesia's market.<\/p>\n
Jakarta-based Indocement, which was set up in 1985, is trying
\nto diversify its fuel sources to cut the cost of making the
\nbuilding material and powering its machinery after net income
\nplunged 59 percent to Rp 116 billion last year on higher expenses
\nand foreign-currency losses. Net income in 2003 was Rp 7.9
\nbillion, excluding the year's gain from asset sales and other
\none-time gains.<\/p>\n
"We can use gas, blend our coal" with cheaper varieties of
\ncoal, Kartawijaya said.<\/p>\n
Indocement uses coal to heat kilns, besides using diesel and
\nnatural gas to power electricity generators used to run other
\nmachinery and equipment.<\/p>\n
"It's high time that cement makers such as Indocement make
\nadjustments in their equipment and use the cheaper, lower-grade
\ncoal," Jeffrey Mulyono, chairman of the Indonesian Coal Mining
\nAssociation, said in a phone interview. "Theoretically, cement
\nmakers can use any kind of coal. Blending is the right move for
\nmore efficient cost."<\/p>\n
Shares of Indocement, traded on the Jakarta Stock Exchange,
\nhave risen 1.6 percent this year, compared with the benchmark
\nJakarta Composite Index's 7 percent gain. The stock rose 25
\nrupiah, or 0.8 percent, to 3150 at 9:53 a.m. local time.<\/p>\n
Cement sales in Indonesia are rising as faster economic growth
\nand the lowest interest rates in six years raise consumer
\nspending and boost the construction of homes and retail space in
\nthe nation of 238 million people.<\/p>\n
Indocement may also capitalize on the country's plan to boost
\ninfrastructure spending. The government said in January it may
\nneed US$150 billion of investment in roads, power plants and
\nother projects to create more jobs and accelerate the pace of
\neconomic growth during the next five years.<\/p>\n
Indonesia's $222 billion economy, Southeast Asia's biggest,
\nexpanded 5.1 percent last year and is forecast by the government
\nto grow 5.5 percent this year and 6.1 percent next year, the
\nfastest since 1996.<\/p>\n
"Indocement is to benefit the most as the toll-road projects
\nthat the government is launching now are mostly in West and
\nCentral Java," said Agung Wisnu Wardhana, who helps manage the
\nequivalent of $400 million in Indonesian equities and bonds at
\nBank Indonesia's pension fund, including Indocement shares.<\/p>\n
Indocement has plants in Citeureup and Cirebon in West Java
\nand in South Kalimantan, with a capacity of 16.5 million tons.<\/p>\n
Still, cement demand hasn't caught up with supply.<\/p>\n
Indonesian cement makers sold 37.7 million tons in 2004, an 8
\npercent increase from a year earlier. That compares with the
\ncombined capacity of all Indonesian cement makers of 45 million
\ntons a year, Satriyo, president of Semen Gresik, said on April
\n20.<\/p>\n
"Indocement doesn't see any need for expansion for another
\nfour to five years," Kartawijaya said. This year, Indonesia's
\ntotal cement sales may rise 10 percent. "We are going to at least
\nmaintain our market share this year."<\/p>\n
As many as six analysts surveyed by Bloomberg in the past
\nmonth rated Indocement stock a "buy," while one had a "sell"
\nrating.<\/p>\n
"With an operating rate of only 74 percent currently and
\nlocated in a high-growth area, Indocement appears well-placed" to
\nboost market share and improve profitability, JP Morgan analyst
\nAmi Tantri said in a note to clients.<\/p>",
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