The hike in prices by cement majors needs to be looked at in the context of the monsoon loss.
After the customary fall in prices during the monsoon season, the cement sector is once again witnessing a period of price hikes by cement manufacturers.
While the news about the hike in prices by Rs 10 per bag is a positive development for the companies, it needs to be borne in mind that the fall and subsequent rise in prices post-monsoon is a seasonal and recurrent phenomenon. The increase in prices, accordingly, needs to be looked at in the context of two things.
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First, on a quarter-to-quarter basis, has the loss in prices during the monsoon been recovered? Compared with a price of Rs 160-165 per bag in April in Mumbai, it had fallen to around Rs 135 during the season. Thus, the recent hike will effectively recover only a third of the loss.
Secondly, for an outlook on the second quarter, prices need to be viewed compared with the same period last year. Prices last year were largely at the same levels as currently and therefore there will not be any significant price impact on profitability.
Hence, any growth in the profitability in the quarter-ending September 2003 will have to come on the back of volume growth, interest cost reduction and improvement in operating efficiencies.
On the volumes front, production for the industry was higher by 3.7 per cent during the July-August period while despatches were higher by 4.2 per cent during the same period. For the four cement majors, production was higher by 3.8 per cent while despatches were higher by 5 per cent during the July-August period compared to the same period last year.
While most cement companies will have to rely on the volumes and efficiencies for growth in the quarter, diversified companies stand a much better chance.
For instance, Grasim will be able to post a considerably better performance. This is because of the fact that sponge iron contributed 11 per cent to Grasim