India's ACC Ltd. (500410.BY) and Ambuja Cements Ltd. (500425.BY), part of the Holcim group, Wednesday reported better-than-expected third-quarter net profits on the back of lower fuel costs and higher volumes. The companies also forecast a strong demand scenario--boosted by infrastructure and construction projects in small cities--with Ambuja saying it expects "to see double-digit growth" in demand in the rest of 2009.

For the quarter ended Sept. 30, ACC, India's largest cement maker by capacity, said its consolidated net profit rose 60% to INR4.16 billion. Its net sales for the period increased 9.3% to INR20.77 billion.

Ambuja's net profit rose 27% INR3.18 billion, while net sales rose 16% to INR16.11 billion. Its results were also helped by an interest income that more than doubled to INR567.8 million.

The interest income included INR461.6 million as discount on prepayment of an outstanding deferred sales-tax loan, Ambuja said.

Eleven analysts polled by Dow Jones Newswires, on average, expected ACC to report a net profit of INR3.98 billion and Ambuja to post INR3.03 billion.

Cement companies in India--the world's second-largest producer of the commodity--have witnessed strong volume growth in the July-September quarter as the federal government increased its spending on infrastructure such as housing, roads, ports and power stations.

In the just-ended quarter, ACC sold 5.01 million metric tons of cement, up 3.1% from a year earlier, while Ambuja's sales volume rose 5.1% to 4.1 million tons.

Warning Signals

Both companies warned the additional cement capacities expected to come on stream in the next 6-12 months may put pressures on industry margins.

Ambuja said it is witnessing some pricing pressure in the central and southern regions of India and that it is likely to persist in 2010. "The recent hike in domestic coal prices will also put additional pressure on operating margins," Ambuja said in a statement.

Cement companies, which use coal as a fuel to power their factories, were hit by record prices on imported coal in 2008 before they tumbled amid the global economic slowdown. Coal prices have started rising again.

-By Ankur Relia; Dow Jones Newswires; 91-22-6145-6112; ankur.relia@dowjones.com