A sharp fall in demand coupled with a rise in production cost may take a toll on cement companies’ performance in the second quarter of this fiscal.
Unlike previous years, the South-West monsoon was well spread and prolonged for most of the September quarter depressing cement demand from the real estate and infrastructure sectors.
A Weak season
Venugopal Panicker, Executive Director, Prism Cement, said the second quarter is generally considered a weak season for the industry.
This year, he said, heavy rains and slow economic growth have hit the industry hard.
UltraTech Cement, which will announce its results on October 19, will set the trend for the industry. Holcim Group companies ACC and Ambuja Cement will announce their results on October 23.
Daljeet S. Kohli, Head of Research, IndiaNivesh Research, said “We expect UltraTech to report a fall of 4.6 per cent in revenue with dispatches dipping three per cent to 9.55 million tonnes.”
Weaker demand was seen across India while higher freight and coal prices led to sharp fall in profit margins for almost all the cement companies, he said.
Rupee fall
The sharp rupee depreciation made life difficult for companies that were dependent on imported coal.
Following the global trend, Coal India also hiked prices in the domestic markets.
Most companies were unable to pass on the rise in production cost to end consumers due to poor demand.
Teena Virmani, Research Analyst, Kotak Securities, said cement prices fell by Rs 15-20 per 50 kg bag in the first two months of the second quarter and recovered by Rs 20-25 a bag in different regions mid-September.
The all-India average cement prices in September quarter was at Rs 297 a bag against Rs 287 in the June quarter. In September, it was about Rs 306.
Realisation is likely to drop by 3-5 per cent for all the cement companies, said Jinesh Gandhi, Research Analyst, Motilal Oswal Financial Services.
Apart from the fall in demand, the cement companies have built up production capacity in excess of demand resulting in industry capacity utilisation falling to 66 per cent, the lowest level in last 13 years, he added.
However, a healthy monsoon is likely to spur demand for cement in the rural and semi urban areas.