Despite moderate growth in dispatches and substantial savings on fuel costs, cement companies saw their profits sink in the July-September period, mainly due to a sharp drop in cement prices and higher freight expenses.

ACC Ltd, Ambuja Cements Ltd and UltraTech Cement Ltd reported 45-50 per cent year-on-year declines in their net profits during the quarter.

The all-India average despatches growth, according to an industry estimate, was 3.5 per cent in the September quarter. On the cost front, companies made savings on coal costs with thermal coal prices in the international market touching a multi-year low of $78 a tonne (down 11 per over last year).

UltraTech and Ambuja saved 11-18 per cent on their power and fuel costs. Many players have also started to use petcoke — a cheaper variety of fuel — in the kiln to cut costs.

Drop in realisations

All India average cement prices were at Rs 279 for a 50-kg bag during the quarter, down 7 per cent from Rs 300/50-kg bag. In South India, a market where price discipline is usually observed, prices dropped as players tried hard to drive better volumes. But offtake was muted over the statehood agitation in the Telangana region, which brought construction activities to a standstill in Andhra Pradesh, the largest market in the South.

Overall, the extended monsoon in some parts of the country and drying-up of orders from infrastructure projects are also reasons for lower growth.

In the North, supply shortages of sand restricted construction activity, complained some companies.

raw material costs

Though international coal prices have dropped sharply, cement makers are still facing heat from high prices of inputs such as limestone, gypsum and fly-ash. ACC, for instance, saw its cost of materials rise to 20 per cent of sales, up from 14 per cent in the corresponding quarter last year.

For UltraTech, raw material cost was 17 per cent of sales, up from 13.8 per cent in the September quarter last year.

This apart, the increase in rail freight charges for bulk transport of cement and an increase in road freight cost due to the higher price of diesel have hit cement makers.

Operating margins of top players saw a sharp contraction of 7-10 percentage points.

Cost pressure is likely to continue for cement players in the near term.

The railways have introduced a busy-season surcharge of 15 per cent in September and many road transporters, too, are said to have increased transport charges. Therefore, a revival in profit growth now hinges mainly on better realisations.

The end-September price hikes by companies as post-monsoon construction activity resumed have been partially reversed, say dealers.

Orders from infrastructure projects cleared by the Cabinet Committee on Investments recently may also take time to flow in. The profit picture for cement companies may not look up in a hurry.

> rajalakshmi.sivam@thehindu.co.in

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