The Hindu Business Line : Fall in output, prices may hit cement cos' Q1 profits

Sharp fall in production coupled with high input cost and dip in prices may impact the profitability of cement companies in the first quarter of this fiscal.

Some of the cement companies such as India Cements, Birla Corporation, Shree Cements and Grasim Industries that have registered a year-on-year growth in production were largely due to the fresh capacity additions in the recent months.

India Cements will shortly commission its 1.4 million tonne per annum (mtpa) plant in Rajasthan. ACC will ramp-up production at its recently commissioned 1.2 mtpa plant in Orissa and three mtpa capacity in Karnataka starting this month. ACC will also add another three mtpa of capacity through expansion in Maharashtra by December. The decline in output during the June quarter when compared on a sequential basis reflects the true picture of the industry, said an analyst.

With the new capacity additions going on stream, utilisation has fallen to 79 per cent during the first quarter of this fiscal against 90 per cent in the same period last year. It was 88 per cent in the March quarter. The industry has added 50 mtpa of fresh capacity in the last one year.

After a recovery in April, the demand slowed down with the onset of monsoon in the western and northern markets. The southern region was impacted by fall in demand from the Government-sponsored infrastructure projects in Andhra Pradesh.

“The organised real-estate segment is witnessing a gradual recovery. Increase in launch of new housing projects would drive cement consumption with a lag of six months,” said a cement company official.

COST PRESSURE

Coal prices are on the uptrend in the last few months due to increase in demand. Though domestic coal prices have more or less remained stable, reduction in supply through linkages by State-owned Coal India pushed up the production cost. Procurement through e-auction had pushed up production cost by about Rs 30-40 a tonne, said a cement company official. Imported coal prices have gone up by 14 per cent on a sequential basis. The rise in petrol and diesel prices is expected to push up cost by 6-10 per cent, he said.

Prices down

Notwithstanding the rising input cost, cement prices have been on the decline since May. Weak demand has pulled down prices by Rs 20-25 for 50 kg bag year-on-year and is expected to remain volatile till end of this year, said Mr V. Sanjay, a Mumbai-based cement dealer.

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