Cement firms remain pessimistic after bad Q2 run

Ultratech, ACC see quartelry profits halve, Ambuja Cements net drops 45%, as sales dip and freight costs rise

Cement firms had a bad run during the July-September quarter, with major producers reporting huge dips in net profit as selling prices fell and freight costs rose.
    
Ultratech Cement, ACC and Ambuja Cements also don't see better days ahead in the remaining period of the current financial year due to challenging macro-economic conditions.
    
Ultratech, the largest cement maker, reported a 52 per cent drop in profit for the July-September quarter at Rs 264 crore. Earnings at Ambuja Cements fell 45.4 per cent to Rs 166 crore, while at ACC, they were halved to Rs 119 crore. J K Lakshmi Cement's profit declined almost 80 per cent to Rs 10.30 crore.
 

The common reason cited by the cement makers is lower sales amid subdued demand and higher freight costs.
    
"Cement demand remained sluggish on account of prolonged monsoon and low offtake from the infrastructure and housing sectors," Ultratech said.



The company said the benefit of softening in prices of imported coal was negated by the rupee devaluation. Logistics and raw material costs rose on higher diesel prices.
    
Both ACC and Ambuja, majority-owned by Swiss building material major Holcim, cited poor realisations for the lower bottom line.
    

"Reduced profitability during the quarter is attributed to sluggish market conditions and lower realisations. Overall, the macro-environment continued to be dull and characterised by slow industrial and agricultural growth, rising prices and volatile foreign exchange rates," ACC said.
    
"The cement industry is going through subdued demand on account of overall economic slowdown. Lower realisation and higher logistics cost impacted profitability," Ambuja said.
    
J K Lakshmi Cement's Director Shailendra Chouksey said there had been a negative demand of 3-4 per cent in the north and Gujarat, where the company operates.
    
"Lower demand then led to lower prices and realisation. These have led to the fall in net profit," he said.

    
Chennai-based Ramco Cements' profit dipped by a little over 86 per cent to Rs 18.27 crore on lower sales.
    
Cement sales generally pick up after the monsoon season, but this time the major producers do not see much hope.
    
"Overall, the macro-environment continued to be dull and characterised by slow industrial and agricultural growth, rising prices and volatile foreign exchange rates," ACC said.
     
Its peer Ambuja Cements said, "The outlook continues to remain challenging due to difficult macro-economic condition and resultant subdued demand."
    

Ultratech said demand for cement may grow 5 per cent during the current fiscal and the key demand drivers will continue to be housing and infrastructure spends.