The 204 million tonne per annum cement industry in India is going through difficult times, as it faces double trouble with topline and operating margins both reeling under pressure.
Cement majors including ACC, UltraTech, Ambuja Cements and Binani Cement, among others, foresee tough times ahead. Significant raw material pressure and government control on cement prices have resulted in a negative growth in the bottomline and topline for these companies.
ACC Ltd, while declaring its Q3 results for the current year said, ?We foresee challenging times ahead, in respect of markets, investments and input costs. While GDP growth targets for the country are being moderated to around 6.5% to 7%, ACC is of the view that growth of cement consumption in the coming months, particularly in the housing sector, may decline.?
Hit by rising input cost and slow down in the real estate sector, UltraTech Cement Ltd, an Aditya Birla Group company, reported a fall of 12% in its net profit to Rs 164 crore for Q2 FY09, including a dip in its net sales to Rs 1,396 crore against Rs 1,168 crore last year.
?There is a visible slowdown in the real estate and infrastructure sectors on account of the current liquidity crisis. This has resulted in slackening of demand for cement. The situation is further aggravated by continuous reduction in linkage coal availability and no new linkages in operation. All of these pose a challenge to the cement industry,? UltraTech said in a statement.
According to a report on the sector by Angel Broking, power and fuel costs contribute about 22-25% to the total cost of production for cement companies. Moreover, import prices of coal have increased to $180 per tonne in August 2008 from $80 per tonne in August 2007, which has resulted in a substantial Rs 400 per tonne increase in the manufacturing cost of cement. Also, freight cost, which accounts for about 18-20 % of the operating cost, has increased due to increase in the diesel prices.
Ambuja Cements in a statement said, ?Credit markets tightened considerably during the past quarter. And the demand for cement was weak. Moreover, the current global crisis imposes major challenges in the form of uncertainties regarding liquidity, interest rates and consumer demand.?
Further, the industry also expresses concern on the likely commissioning of around 90 million tonne capacity in a phased manner over the next three years that could lead to a surplus scenario by CY?09, resulting in further pressure on earnings, sales realisation and margins.