The Hindu Business Line : Cement cos’ realisation marginally up sequentially

Mumbai, May 4 Cement companies price realisation was almost flat in the fourth quarter of 2008-09 on a sequential basis despite cement prices rising in the wake of strong demand.

ACC and Shree Cement’s realisation was up 4 per cent, while Ambuja Cement and UltraTech Cement registered a rise of 3 per cent and 2 per cent, respectively.

However, companies managed to post an increase in profit due to the sharp fall in input cost such as imported coal and power cost amidst strong demand and higher production.

The Government had hauled up cement companies for jacking up prices despite the excise duty cut and warned of severe action if corrective measures were not taken. As part of the stimulus package, the Government reduced excise duty by 4 percentage points to 8 per cent in December. However, cement prices increased by Rs 20-25 a bag across the country in the fourth quarter of last fiscal on the back of revival in demand, especially in the rural regions.

“It has now been proved beyond doubt that cement companies were not behind the price rise. At least from now on the Government should stop blaming the cement companies for price rise,” said a cement company official.

Incidental expenses

Dealers contend that incidental cost such as transportation from the factory gate, inventory and labour cost need to be recovered from the buyers.

“We fix the price after taking into account various factors which include taxes, transportation and labour cost. Inventory pile up leads to price rise when the demand recovers. With the monsoon fast approaching, we are facing uncertainty on the price front again,” said one of the leading Mumbai-based cement dealers.

Mr J. Datta Gupta, Chief Commercial Officer, ACC, said, cement prices vary from location to location, and depend on the demand-supply balance. “With large capacity additions expected in the next two quarters it is expected that the prices will stabilise July onwards,” he added.

Input cost down

Production cost for top cement companies have come down substantially after the sharp drop in international coal prices. ACC, UltraTech, Shree Cement and Ambuja Cement have reported a drop in production cost on a sequential basis.

UltraTech power and fuel (P&F) cost in the fourth quarter was down 34 per cent at Rs 405 crore on a sequential basis. UltraTech imports about 45 per cent of its coal requirements.

“The huge fall witnessed in prices of international coal (67 per cent from peak) and benefits derived from commissioning of its CPP (captive power plant) capacities has led to sharp fall in P&F bill of UltraTech,” said Mr Ajit Motwani, research analyst, Emkay Global Financial Services.

Holcim group companies ACC and Ambuja Cement also derived the benefit of fall in international coal prices. On a sequential basis, P&F cost of ACC was down 14 per cent at Rs 414 crore while Ambuja Cement’s fell 16 per cent to Rs 399 crore.