Profits had been falling for Jagan Mohan Reddy family cement firm

Bharathi Cement, part-owned by AP chief minister's family, faces allegations of getting bulk of state govt orders

An increase in operating revenue was accompanied by a fall in profits for the family cement firm in the years leading to the election of Y S Jagan Mohan Reddy as chief minister (CM) of Andhra Pradesh. 

The son of two-time CM Y S R Reddy, he defeated N Chandrababu Naidu to head the government in 2019. A firm in which his family holds stake, Bharathi Cement Corporation, has faced allegations of receiving disproportionate orders from the state government that he heads. Officials have reportedly denied favouritism.  

Bharathi Cement Corporation’s total profit fell 7.9 per cent between 2016 and 2018, based on three years’ financials that Business Standard examined. 

The total profit was Rs 204.7 crore in 2016. It was Rs 188.5 crore in 2018. This came even as operating revenue rose 12.9 per cent to Rs 1,623.7 crore in the same period. Higher material costs played a role. The cost of material consumed went up from Rs 138.4 crore in 2016 to Rs 185 crore in 2018, shows a closer look at the expenses. It went up from accounting for 9.2 per cent of total income to 10.9 per cent. Another increase seen was in other expenses. This went up 21.2 per cent — from Rs 894 crore to Rs 1,083.8 crore. 

The company completed 20 years around the time Reddy became CM. It was incorporated on May 12, 1999, as Raghuram Cements & Minerals. It was renamed Bharathi in August 2008. French Group Vicat SA acquired majority stake in the enterprise in April 2010. According to the website, the group now has 51 per cent stake. 

The website also shows that it has a cement plant with a capacity of 5 million tonnes per annum, two aggregate quarries, one laminated bag manufacturing unit, one concrete batch plant, and operations in five southern states. It also exports to Sri Lanka. 

The allegations around favouritism cropped up during a slack period in domestic demand. Cement production has fallen 19.5 per cent for the first eight months of 2020-21, according to a January 5 CARE Ratings industry research report. The capacity utilisation has been less than half (48 per cent) for the eight-month period between April and November. 

“Given how fiscally strained government finances are at the moment, not all infrastructure projects have resumed construction, which is putting a halt to new investments towards infrastructure creation thus, affecting the demand for cement,” it said. 

The effect has largely been because of the economic impact of the Covid-19 pandemic, according to the report. This has also had an impact on the cost of raw material, which fell 20.3 per cent during the first half of the year. It projects production to fall between 14 per cent and 16 per cent for the current financial year. Capacity utilisation is expected to be between 45 per cent and 50 per cent. 

“This will be the steepest-ever fall in production (and capacity utilisation) that the industry has ever witnessed,” it added.  

An email sent to the company did not receive a response till the time of going to press.