Although the newly commissioned Alathiyur unit worked at an average capacity of 75 per cent in its very first year of operation, the cement prices crashed so badly that the interest and depreciation costs could not be recovered.

For the year 1997-98, Madras Cements' turnover improved 17.62 per cent to Rs 475.28 crore (Rs 404.07 crore in 1996-97). In terms of volume, the increase is higher at 25 per cent which clearly reflects fall in realisation. The company had despatched 2.27 million tonnes in 1997-98, compared with 1.81 million tonnes in the previous year.

The company, which till the previous year's first half, enjoyed operational level margins of close to 40 per cent saw it decline rather sharply this year. In the first half yearthe break down of the raw mill at the Jayanthipuram plant pushed up the cost as the company had to outsource clinker at the steep premium to its cost of production.

It also had to incur huge freight costs for transporting clinker from its RR Nagar plant. In the second half the cement prices fell by Rs 25 to Rs 30 per bag during the third week of January resulting in lower margins. The operating margin in 1997-98 was 32.98 per cent, against the previous year's average of 34.65 per cent.

Interest cost shot up 149 per cent to Rs 77.78 crore (Rs 31.26 crore) mainly due to the predominantly debt-funded Alathiyur plant going on stream at the beginning of the year.

Madras Cements vice-president (finance) AV Dharmakrishnan told The Financial Express that the company had provided for full interest eventhough it could have capitalised part of its interest costs. Steps are being initiated to bring down the average cost of borrowing by pre-paying cost debts and replacing them with cheaper funds, hesaid.

Depreciation was higher at Rs 41.99 crore (Rs 31 crore) due to the capitalisation of the Alathiyur plant. The company has provided Rs 3.87 crore towards tax as per the guidelines of the Institute of Chartered Accountants of India.

Last year they had treated the tax liability as advance tax.