Despite a 16% (YoY) rise in net sales for the first quarter ended 30^th June’14, the higher operating costs, depreciation, interest and tax outgo, the Aditya Birla flagship company ended the Q1 with a 20% decline in consolidated net profit at Rs.487 crore.  Operating costs rose 21%, with depreciation rising 4% and interest cost rising 33%; tax expenses were up 17%.  The increase in Finance Cost was due to commissioning of capacities and additional borrowing in UltraTech. Also tax expenses were higher due to lower tax exempt income in current year and lower deferred tax liability in last year due to commissioning of power plants.  Debt at the end of the quarter stands at Rs.12,093 crore.

The performance was driven mainly by cement, followed by VSF, chemicals.  The company has stated that margins during the quarter were under pressure due to challenging pricing environment.  During current Q1, the company commissioned new capacities – two lines of aggregate capacity of 77,000 mtpa of VSF business in Gujarat in July. It also added 25 MW thermal power plant at Karnatala and 6.5 mW water heat recovery system at Maharashtra.

Regarding the future outlook, for VSF unit, specialty fibre is expected to improve product mix and realizations. In cement, merger of Jaypee Cement unit and brownfield expansion is expected to drive volumes.  But VSF margins are expected to remain under pressure in near term due to overcapacity in China.