UPDATE 1-Indian cement maker ACC: costs squeezing margins

(Adds details, quotes, share price)

NEW DELHI May 20 (Reuters) - India's leading cement maker, ACC Ltd (ACC.BO), is facing enormous pressure on its margins because of rising input costs and will have to raise prices after a freeze ends in about three months, company officials said.

Core margins had fallen 4 percent in the March quarter and would see more erosion in April-June, they said on Tuesday.

ACC, about 41 percent owned by Swiss cement maker Holcim (HOLN.VX), had earlier this month said it would hold prices for 2-3 months after the government asked cement firms to help contain inflation running at 3-1/2-year highs.

"Given the current situation in the industry, ACC is under tremendous pressure as costs are going up... not incrementally, but leap-frogging," Managing Director Sumit Banerjee said at a news conference.

He said ACC, which has the single largest capacity for cement in India, would raise prices after the freeze period. "If we can, we will," Banerjee said.

ACC shares were trading up 0.7 percent at 684.90 rupees by 0740 GMT, while the main BSE index .BSESN was down 1.3 percent. The stock is, however, down about 37 percent in 2008, compared with a 15 percent decline in the index.

Chief Financial Officer Onne van der Weijde said core margins were being eroded by 1 percentage point each month.

Core margins, which exclude interest and taxes paid and depreciation and amortisation incurred, were 26 percent in the first quarter ended March, he said, adding they fell despite a 9.5 percent rise in sales.

"For the last 12 months, my factory-gate prices are falling and costs are increasing. The next nine months will be no different," Weijde said, adding cost had risen 18-20 percent in the 12 months to April.

"It is quite clear margins in Q2 will be under further pressure," Banerjee said.

ACC's planned capacity expansion to 30 million tonnes by end-2010 from 23 million tonnes now was on track, but future plans were a "question mark," Banerjee said, as annual returns were not enough to cover expansion costs.

"The situation is not very healthy for investments to flourish," Banerjee said. (Reporting by C.J. Kuncheria; Editing by Ranjit Gangadharan)