The Hindu Business Line : Margin boost for cement companies

Cement companies managed to deliver yet another quarter of impressive growth for September 2009, despite it being the traditionally weak monsoon quarter.

Healthy demand in central and eastern parts of the country with price increases in the range of Rs 10-30 a bag in regions other than the South saw most cement companies reporting strong sales growth.

The correction in international coal prices (55 per cent lower y-o-y) also helped players across regions see a good 3-9 per cent point expansion in operating profit margins.

ACC and UltraTech Cement reported an over 50 per cent growth in net profit on a 10 per cent increase in sales and sizeable savings in power and fuel cost.

Ambuja Cements did well on the sales front with a 16 per cent growth, but reported a more muted 27 per cent increase in profit on fuel costs remaining flat. The company has just exhausted its coal stocks that were acquired in 2008.

The price-led boost to sales was quite visible from the despatch figures reported by companies.

ACC saw its September quarter despatches grow at 3 per cent (y-o-y) as Ambuja Cements’ despatches grew 5 per cent (y-o-y).

UltraTech whose operations are concentrated in the West, however, saw despatches (up 11 per cent) boost sales more than price.

Realisations for South-based companies were more muted.

Madras Cements outdid all its peers, helped by power as well.

India Cements, however, reported lower profit growth, with sales expanding 7 per cent.

Though cement sales had revived as early as March this year after a nine-month long lull, cement companies have reported a revival in margins only from June. As coal prices continued to be stable ($73 per tonne), cement manufacturers succeeded in holding on their margins in September too. UltraTech has seen the highest 9 per cent point expansion in profit margins among the players discussed, following a close to 20 per cent fall in power-fuel costs.

However, one should not ignore the big impact that the low base has had on these growth numbers. The September quarter of last year was one of the worst quarters for the industry. Sustaining these growth rates may not be easy, with players foreseeing lower realisations as fresh capacity is added.