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Our Bureau

Mumbai, Nov. 7 Nine major cement companies, which command a market share of 65 per cent, have reported a 17 per cent jump in cost of production to Rs 138 for a 50 kg bag in the second quarter of the financial year ended September 30.

Realisation for the nine companies – ACC, Ambuja Cement, Grasim Industries, Ultratech Cement, India Cements, Madras Cements, Shree Cement, JK Cement and Orient Paper – improved by 5 per cent to Rs 183 a bag in the quarter under review against Rs 174 recorded in the same period last year.

Realisation was hit by the sharp rise in power, fuel and freight cost, while raw material such as gypsum and fly ash prices rose 12 per cent.

Power and fuel cost was up 33 per cent to Rs 90 a bag due to higher coal and pet coke prices, besides increase in diesel prices pushed up freight cost by 7.4 per cent Rs 30 a bag. Aggregate (earnings before interest, depreciation, taxes and amortisation) EBIDTA per tonne for the quarter stood at Rs 46 a bag, a decline of 19 per cent year-on-year.

Interest charges for the quarter rose by 84.5 per cent year-on-year mainly due to higher interest rates on debt taken for capital expenditure.

On a sequential basis, cost of production increased 8 per cent on higher international coal prices. EBIDTA declined by 11 per cent a tonne. International coal prices increased 16 per cent from $141 a tonne in first quarter of the financial year 2009 to $168 a tonne in the second quarter of FY’09.

Mr Ajit Motwani, research analyst, Emkay Global Financial Services, said though coal prices have softened, profitability of the industry will continue to be under pressure as the cement consumption growth is expected to weaken on the back of high interest rates and medium-term liquidity crunch hitting the housing demand and investment in infrastructure sector.

Likely commissioning of around 90 million tonnes capacity in a phased manner over the next three years could lead to a surplus scenario by calendar year 2009 resulting in pressure on earnings, sales realisation and margins.

“The growth of cement consumption in the coming months, particularly in the housing sector, may decline. Overall, we foresee challenging times ahead of us, in respect of markets, investments and input costs, ” Mr Sumit Banerjee, Managing Director, ACC Ltd, said in his outlook for the fourth quarter of 2009.

The Government has recently cut the gross domestic product growth target in the financial year 2008-09 to about 6.5 per cent to 7 per cent. Cement demand on an average is pegged slightly higher than the GDP estimate.

More Stories on : Cement | Outlook | Associated Cement Companies Ltd

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