Larsen & Toubro's (L&T) entry into the Sri Lankan market, as a safeguard against the domestic slowdown in the cement business, has turned sour with Larsen and Toubro Ceylinco, its joint venture there, incurring a loss of Rs 12 crore during the last fiscal.
The joint venture was formed with the Ceylinco group of Sri Lanka and last year was the first year of operations.
The company, in its annual report, has attributed the reported loss to the severe competition in the Sri Lankan market. Along with Gujarat Ambuja, L&T is the second Indian company to make an attempt to establish major presence in Sri Lanka.
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According to analysts, the losses incurred by L&T's Sri Lankan arm comes as a surprise considering the potential of the island country and the price realisation there has historically been far better compared with that in India's southern markets.
The bulk cement handling unit sources cement from L&T's Gujarat Cement Works. The company sold 0.21 million tonne of bulk and packed cement during the year and has garnered a market share of 9 per cent. The sales and other income for the year stood at Rs 54 crore.
Besides Larsen and Toubro Ceylinco, Ceylon Ambuja is the other Indian venture that caters to the Sri Lankan market. Lesser distribution hurdles in the Sri Lankan market is one of the reasons that have attracted the India cement majors.
L&T and Gujarat Ambuja's emphasis on exporting cement to Sri Lanka also helps preventing a supply overhang in the domestic market, which in turn, enables the cement companies to hold on to their price levels.