Higher realisations and rising despatches helped cement players record a growth that was above market estimates for the December 2011 quarter.
The cement industry registered a close to 9 per cent growth in despatches this quarter (year-on-year) – the highest growth so far this fiscal. In addition, the all-India average price of cement increased by 20 per cent to Rs 295/bag.
Aided by these two factors, top players in the industry – UltraTech Cement, Ambuja Cements and ACC – have grown sales at 15-28 per cent, year-on-year. Though this growth comes on the low base of last year, it is an encouraging sign.
While most players had offset the higher raw material cost through higher prices and posted strong growth in net profits too, some faced margin pressures.
Surprise from offtake
After a lacklustre year for demand in 2010, 2011 started out on a muted note for players. Despatches were flat in the March 2011quarter and inched up to just 3.5 per cent growth in the September quarter.
However, surprisingly offtake began to improve from October. Players say that revival in infrastructure demand especially from Government projects and higher housing demand in rural and semi-urban regions helped despatches grow.
Ambuja Cements recorded an 11 per cent growth in despatches at 5.5 million tonnes in the December quarter. ACC and UltraTech cement registered a 5.5 per cent and a six per cent growth respectively.
Demand has picked up in southern States too. The southern cement major India Cements recorded a seven per cent growth in despatches. Madras Cements recorded an even higher growth of 14 per cent.
The increased offtake has helped players scale up their capacity utilisation at plants. The average capacity utilisation of the industry stood at around 70-75 per cent in the December quarter up from 65 per cent in the September quarter.
Prices helped by demand
Even last year, when despatches growth was muted, cement prices were in a rising trend in most pockets of the country.
By October, as despatches began to improve, prices scaled up further.
The eastern region saw the most increase in price. In Kolkata, price ruled at Rs 311/bag in December (Rs 237 in December 2010), up from Rs 267/bag in September.
In Ahmedabad, prices have scaled up from the average of Rs 222/bag last year to Rs 272/bag by end-December. In the South prices have been stable since September end at around Rs 305/bag, a 15 per cent increase over a year.
Though the industry as a whole had to spend higher amounts towards coal following the increased costs on rupee depreciation and the hike in prices by Coal India, most of them managed to improve operating level profit margins.
UltraTech Cement improved its operating profit margin to 24 per cent from 20.6 per cent in the same quarter last year. Similarly India Cements and Madras Cements too managed to improve margins.
Ambuja Cements, which suffered a 20 per cent increase in raw material costs and an 18 per cent increase in power and fuel costs, saw operating profit margin drop to 23.4 per cent from 26 per cent in the same quarter last year.