The Rs 4,000-crore Indian ready mix concrete (RMC) segment, which had emerged as an important business channel for large cement companies and had posted profits until FY 2007-08, has run into trouble.

RMC firms are staring at considerable bad debts, with top clients, some of them large developers, caught in a financial vortex. Such clients have been delaying payments due to the RMC firms.

The delay in payments will put added pressure on the sector, which was expected to grow at 25-30% this financial year, say experts.

Hans Fuchs, MD of ACC Concrete Ltd, told FE, ?The real estate sector in urban India has been showing a dip over the last four months in the order of 20-30%. This, in turn, is affecting the RMC industry, which has traditionally been supplying approximately 70% of its volume to this segment. Despite working hard with customers to ensure that payments are received, it shall be inevitable that some of the aged debt shall turn bad.?

The strategic importance of RMC as a channel business for cement companies was recognised some time ago. Consequently, cement majors like Grasim, UltraTech, ACC Ltd and JK Lakshmi made a commitment to grow the vertically integrated and value adding business during 2008.

The use of RMC in the Indian construction industry, at present, stands at just 3-4%, as compared to as high as 60% in developed countries. The high projected growth rate for the sector was its main attraction.

In accordance, ACC Ltd had transferred its RMC unit to a wholly-owned subsidiary, ACC Concrete Ltd, to scale up the RMC business. Also, French cement giant Lafarge acquired L&T?s RMC business last year to establish itself as the leader in the Indian RMC market, with a market share of 25%.

Lafarge and JK Lakshmi, however, said they have not yet witnessed a delay in payments from clients. Shailendra Chouksey, whole time director of JK Lakshmi Cement said, ?Fortunately, we have adopted and followed a very prudent credit policy. So far, we have not suffered any bad debt position in our operations, though I understand from some of our competitors that there have been a number of cases of even reputed builders delaying payments much beyond the normal credit period.?

A Lafarge spokesperson, while declining to give specifics, said, ?As per our company policy, we don?t give profit numbers. Moreover, we don?t see any significant change in how we had planned our business earlier. We deal with established players and our credit policy is clearly laid down in terms of business.?

?With the global financial crisis taking its toll on the Indian construction market, especially the real estate sector, RMC expansion plans seem to have slowed down,? said experts.

The UltraTech spokesperson could not be contacted for comment.

ABC of RMC

• Slowdown in receivables, payments

• Real estate accounts for 70% of volumes

• Use by Indian construction 3-4% vs 60% in developed world

• Other players also to slow expansion

• ACC Concrete?s Rs 600 cr expansion put on hold for 2009