India Cements’ Q1. Sharp increase in costs, poor prices weigh on India Cements’ Q1 show

Leading cement maker India Cements said it went through a phase of unprecedented cost increases with no option to fully pass on the same to buyers amid improvement in cement sales and capacity utilisation in the June quarter The company posted a profit after tax of ₹76 crore mainly due to the tax reversal (revised deferred tax computation) compared to ₹37 crore in the year-ago quarter.

Its EBIDTA declined to about ₹39 crore (₹165 crore) on the back of sharp cost increases.

The company’s total income was ₹1,454 crore . (₹1,025 crore). But total expenses stood at ₹1,526 crore .(₹969 crore). Power and fuel costs shot up to ₹633 crore (₹305 crore).

“We had to shut down all captive power units due to high cost of operations and had to go for grid power. With imported coal (the price of which has hit the roof) the captive units’ power came at a cost of ₹10 per unit whereas grid power came at a price of ₹7 per unit,” said N Srinivasan, Vice-Chairman and Managing Director, India Cements, while discussing the June quarter performance.

Cement sales increased by 38 per cent to 25.53 lakh tonnes compared to 18.51 lakh tonnes in June 2021 quarter. Clinker sales were marginally higher at 1.19 lakh tonnes (0.94 lakh tonnes). The company’s capacity utilisation increased to 69 per cent (50 per cent).

Huge capacity overhang

Despite improved demand, the industry in the South was unable to pass on the increase in the cost of production due to a huge capacity overhang. Also, there was a shift in the pattern of consumption with more demand for OPC with infra activities like roads and metro rail picking up which yielded a lower price as compared to trade. As a result, as compared to all Indian peers who had a reasonable increase in the selling price to partially offset the cost increase, the industry in the South had to bear the brunt of a severe cost-push without any compensating increase in the selling price of cement.

“We have never seen such cost increases in such a short time. Net plant realisation was about ₹4,100 per tonne in June 2022 quarter as against ₹4,200 per tonne in June 2020. The price increase of cement has not even covered the inflation during this period. For coal, the issue today is not the availability, but the very high price. Also, there is no indication of a sharp drop in fuel prices going forward,” he said. 

Srinivasan said that while the company would continue to focus on cutting costs by way of procuring coal at a lower price (it has been procuring some quantum of Russian coal at a little lower price), consuming grid power and avoiding shipment of cement to long distances, it would look to increase the prices in the coming weeks to offset the cost increases.

COMMENT NOW