Indocement to Boost Operating Margin by Cutting Costs
Indocement to Boost Operating Margin by Cutting Costs
Wahyudi Soeriaatmadja
Bloomberg
Jakarta
PT Indocement Tunggal Prakarsa, Indonesia's second-biggest
cement maker, plans to boost operating profit margin this year by
raising prices and using gas and cheaper coal to cut costs.
Indocement, controlled by HeidelbergCement AG, Germany's
largest cement maker, expects to widen operating profit margin to
19.1 percent of sales, Finance Director Christian Kartawijaya
said. The company posted an operating profit of Rp 836.2 billion
(US$88 million), or 18.1 percent of sales, last year. PT Semen
Gresik, Indonesia's largest cement maker with about 44 percent of
the market, had an operating profit margin of 15.8 percent last
year.
"We have raised prices by 5 to 7 percent and plan to raise
them further so it would be as much as 15 percent higher this
year," Kartawijaya said in an interview in Jakarta on May 28.
Indocement controls 31 percent of Indonesia's market.
Jakarta-based Indocement, which was set up in 1985, is trying
to diversify its fuel sources to cut the cost of making the
building material and powering its machinery after net income
plunged 59 percent to Rp 116 billion last year on higher expenses
and foreign-currency losses. Net income in 2003 was Rp 7.9
billion, excluding the year's gain from asset sales and other
one-time gains.
"We can use gas, blend our coal" with cheaper varieties of
coal, Kartawijaya said.
Indocement uses coal to heat kilns, besides using diesel and
natural gas to power electricity generators used to run other
machinery and equipment.
"It's high time that cement makers such as Indocement make
adjustments in their equipment and use the cheaper, lower-grade
coal," Jeffrey Mulyono, chairman of the Indonesian Coal Mining
Association, said in a phone interview. "Theoretically, cement
makers can use any kind of coal. Blending is the right move for
more efficient cost."
Shares of Indocement, traded on the Jakarta Stock Exchange,
have risen 1.6 percent this year, compared with the benchmark
Jakarta Composite Index's 7 percent gain. The stock rose 25
rupiah, or 0.8 percent, to 3150 at 9:53 a.m. local time.
Cement sales in Indonesia are rising as faster economic growth
and the lowest interest rates in six years raise consumer
spending and boost the construction of homes and retail space in
the nation of 238 million people.
Indocement may also capitalize on the country's plan to boost
infrastructure spending. The government said in January it may
need US$150 billion of investment in roads, power plants and
other projects to create more jobs and accelerate the pace of
economic growth during the next five years.
Indonesia's $222 billion economy, Southeast Asia's biggest,
expanded 5.1 percent last year and is forecast by the government
to grow 5.5 percent this year and 6.1 percent next year, the
fastest since 1996.
"Indocement is to benefit the most as the toll-road projects
that the government is launching now are mostly in West and
Central Java," said Agung Wisnu Wardhana, who helps manage the
equivalent of $400 million in Indonesian equities and bonds at
Bank Indonesia's pension fund, including Indocement shares.
Indocement has plants in Citeureup and Cirebon in West Java
and in South Kalimantan, with a capacity of 16.5 million tons.
Still, cement demand hasn't caught up with supply.
Indonesian cement makers sold 37.7 million tons in 2004, an 8
percent increase from a year earlier. That compares with the
combined capacity of all Indonesian cement makers of 45 million
tons a year, Satriyo, president of Semen Gresik, said on April
20.
"Indocement doesn't see any need for expansion for another
four to five years," Kartawijaya said. This year, Indonesia's
total cement sales may rise 10 percent. "We are going to at least
maintain our market share this year."
As many as six analysts surveyed by Bloomberg in the past
month rated Indocement stock a "buy," while one had a "sell"
rating.
"With an operating rate of only 74 percent currently and
located in a high-growth area, Indocement appears well-placed" to
boost market share and improve profitability, JP Morgan analyst
Ami Tantri said in a note to clients.