Cement companies are planning to restructure the dealers’ margins because of high input costs. Sources said that the commission of the dealers are being cut by as high as 50 per cent.
ACC, Ambuja and Vasvadatta Cement have already cut the commissions by around Rs 1.50 to Rs 2 per bag of cement on bulk purchases, they added.
The dealers’ margins on bulk purchase is around Rs 4 per 50-kg bag, whereas it is Rs 5-8 per bag on the retail front.
Madhusudan Shah, a Mumbai-based cement dealer, said, “We are aware that cement companies are restructuring their dealers’ commission across the country. Earlier, commissions varied from region to region. Now they want to have a uniform system across the country.”
According to a cement analyst at Crisil, dealers are an important part of the chain and it is not easy to reduce the commissions especially when there are fewer brands in the market. “On the retail front, there could be a reduction of Rs 1-2 per 50-kg bag,” he added. Another dealer, who did not wish to be named, said, “Our ratio of bulk and trade cement is 60:40. On bulk, the companies are cutting commissions, but on the trade front it is tough.”
The dealers expressed reservations against such a step from the companies. “Companies should fix commission as percentage of the selling price of cement and not in terms of rupees per bag. By linking this way, they don’t have to keep changing the commission due to high input costs,” said Shah.
Binani Cement MD Vinod Juneja said, “Dealers get an average commission of Rs 5-7 per 50kg bag of cement. We have not yet decided to go in for a cut. We have no immediate plans to cut the dealers’ margins. If the pressure comes, then we will see what needs to be done.”
Industry analysts said at a time when new capacities are coming up on stream and competition is getting tougher, cutting dealers’ margins may not be good for the companies as dealers will shift to other firms’ products.