Price hikes no dampener for cement sales in October

Cement companies have shown impressive growth in sales in October despite two consequent price hikes. This has happened mainly on the back of fresh demand from real estate companies and restocking by big dealers.

The exception has been UltraTech Cement, an Aditya Birla Group company, which has registered a seven per cent drop in sales due to the ongoing Telangana agitation. It has a facility at Tadipatri in Andhra Pradesh and another at Malkhed, Karnataka.

The silver lining for the company is that sales were up 16 per cent on a sequential basis which augurs well, said an analyst.

“Though the aggregate demand momentum in the industry is yet to pick up, we expect it to happen over the next three to four quarters. This will be led by better individual housing demand and pick up in infrastructure spending,” said Mr Ajit Motwani, Research Analyst, Emkay Global Financial Services.

With the rise in demand, companies have managed to pass on a portion of their incremental production cost to end users. Prices were hiked by Rs 10-50 a bag (on an average) each in two instalments last month.

However, analysts say profit margins will remain under pressure as companies will find it difficult to pass on entirely the increase in production costs through price hikes.

Input costs rise

Most companies have been hit badly by the steep increase in costs of coal, fuel and freight. In addition, domestic coal availability was an issue due to heavy rainfall at some of Coal India's collieries coupled with the strike by its employees.

Among the world's biggest producers, Coal India accounts for over 80 per cent of domestic production.

“Following the supply constraints, prices in the domestic market shot up sharply in Coal India's e-auction. The competition intensified with power producers vying alongside,” said a cement company official. The other option of importing coal also turned costlier with the sharp depreciation of the rupee against the dollar, he added.

Going forward, it is difficult to predict if the sales momentum will continue. Privately, CEOs believe these are not going to be the easiest of times for the manufacturing sector with order books not as buoyant as they were expected to be.

“We all know that there is a slowdown happening except that nobody knows how long it will last,” an industry official said.

Till then, companies would rather make the most of a good run. Estimates are that the rest of the fiscal may not see too much of an upheaval though 2012-13 could end up presenting a grim scenario.

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