Excess supply, lower realisation, monsoon hit Q1 performance.
The domestic cement majors have seen a disappointing beginning in the current financial year. The long run of high profitablity, since mid-2005, has culminated in a demand-supply mismatch, with the industry adding 100 million tonnes capacity during this period.
The excess supply is expected to continue for six to eight quarters more. This means the 270-million-tonne industry has entered another downcycle.
Lower realisation on the back of sharp price corrections, coupled with less offtake due to the monsoon and higher input costs, pulled down profits. Also, shortage of rail wagons disturbed supplies. The southern market was the worst in terms of prices and demand. The west and north also joined this quarter in pushing the performance of the sector downwards. Only central and eastern markets showed some resilience in prices.
Till last year, the impact was restricted to a certain region. Then, there were factors such as export ban, imports and floods. However, the June quarter hit all regions. The national average price for the quarter was close to Rs 225 for a bag of 50 kg, as against Rs 245 at the start of the quarter. Companies with a pan-India presence were impacted relatively less, while region-specific ones getting affected substantially.
Reduction in coal linkages forced the industry to import coal and buy from the open market. Prices of imported coal rose from $76 per tonne to $110 per tonne on a year-on-year basis.
And, cement prices, already under pressure, are expected to head further downwards.
ACC, with a capacity of 27 million tonnes (mt), continued to be a laggard. It sales volume dipped 2.8 per cent to 5.27 mt, against 5.42 mt in the same period last year. Lower prices meant the bottom line fell 26 per cent to Rs 349.5 crore, compared with Rs 470.98 crore in the corresponding quarter of previous year. UltraTech Cement was hit harder, as its net profit plunged 42 per cent to Rs 243 crore, from Rs 418 crore last year. More, as it reports 33 per cent sales from the south and 43 per cent from the west, its realisation declined 8.5 per cent from Rs 3,776 per tonne to Rs 3,455 per tonne.
| LOSING STRENGTH | |||||||
| Company | Net Profit Rs Cr | Change (%) | Net Sales Rs Cr | Change (%) | Sales Volume (mt) | Change (%) | NPM (%) |
| ACC | 349.5 | -26.0 | 2,167 | -1.0 | 5.3 | -2.8 | 17.41 |
| Ambuja | 391.0 | 20.5 | 2,047 | 10.8 | 5.3 | 10.8 | 18.73 |
| UltraTech | 243.0 | -42.0 | 1,790 | -8.3 |
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The southern market saw a dip of 10 per cent in prices, while prices declined 24 per cent in the western region on a year-on-year basis. Ambuja Cements emerged as the only large producer to show a decent rise, of 20.5 per cent, in its net profit, at Rs 391 crore, compared with Rs 325 crore. The company’s net sales as well as sales volume rose 11 per cent during the quarter. Jaiprakash Associates, an emerging big player in the central region, sold as much as 62 per cent more cement during the quarter. However, it could manage a rise of only five per cent in its bottom line.
The southern region, which has been struggling with overcapacity for quite some time, saw prices ranging between Rs 140 and Rs 180 for a 50-kg bag. The performance of India Cements, a dominant regional player, got badly hit, with its bottom line squeezed to Rs 25 crore, a fall of 81 per cent, against Rs 144 crore in last year’s quarter.
