Hit by rising input costs and an oversupply situation, cement majors like UltraTech, Ambuja and ACC, among others, dread margin pressures. The impact of de-growth or subdued growth in key cement consuming states, driven by lower infrastructure spending, slowdown in the realty sector, extended monsoon and non-availability of railway wagons, resulted in the lowest industry growth of just 5.3% in FY2011. The industry was estimating the demand to growth by 8-9% last year.
According to UltraTech Cement, the industry demand growth of 5.3% recorded in FY2011 is the lowest in the last 10 years.
?The pricing environment may remain challenging and with the impact of surplus capacity, margins may continue to remain under pressure,? UltraTech said while declaring its FY2011 results.
Ambuja Cement, which saw its power and fuel cost rise 36% during the January to March quarter said, ?With steep increase in energy cost driven by increase in coal cost, higher freight costs and higher expected inflation profit margins are expected to be under pressure. Revival of good demand and improvement in realisation to absorb the additional cost burdens are critical as we move into subsequent quarters.?
Worried about its falling margins, northern cement major, JK Lakshmi Cement also saw its operating margins fall to 12% in the first nine months period from April to December 2010 against 31% in FY2010.
Shailendra Chouksey, CFO of JK Lakshmi Cement, had told FE, ?We have fallen considerably in our margins in FY2011 from FY2010, so, if the prices do not increase to take care of the rising cost of input, then our margins are expected to fall further,? he added.