Cement majors witness crumbling profits, shattered sales numbers  

August 5, 2010

Cement companies report fall in net sales and net profits due to sluggish demand and fall in prices.

Most cement companies - except for Ambuja Cements - have reported a fall in their net profits for the June quarter. Sluggish demand along with oversupply in the market has led the sector's lacklustre performance.

In our earlier article (http://www.moneylife.in/article/8/4286.html) Moneylife had predicted that cement prices are likely to come under pressure from April 2010, after the temporary upside witnessed in the previous months.

Cement major ACC Ltd reported a 26% fall in net profits from Rs485.62 crore in the June quarter of FY10, to Rs358.93 crore in the June quarter of FY11. The company's net sales have fallen by 3% from Rs2,119.86 crore in the June quarter of FY10 to Rs2,062.16 crore in Q1FY11.

JK Cement Ltd's net profit fell by 58% from Rs70.22 crore in the first quarter of FY10 to Rs29.5 crore in Q1 of the current fiscal. The company has managed to report a 22% increase in net sales from Rs430.54 crore in Q1FY10 to
Rs525.67 in Q1FY11.

Net profits for UltraTech Cement have fallen by 42% from Rs417.77 crore in the first quarter of the past fiscal to Rs242.73 crore in Q1 of FY11. Net sales for the company have declined by 8% from Rs1,968.93 crore in Q1FY10 to
Rs1,809.67 crore in Q1FY11.

The worst affected among the cement majors who have declared results till date is Andhra Cements, with a fall of 116% in net profits and a 61% decline in net sales in JuneFY11 compared to the corresponding quarter in FY10.

According to reports, demand for cement in the country registered a 7% growth. A region-wise analysis reveals that the growth was 12.2% in the central region; 11.4% in the western region followed by a 9% growth in the eastern and northern regions. The southern part of the country registered practically nil growth during the quarter under review.

India Cements, the second biggest player in the southern region, reported 83% fall in net profits in the June quarter of FY11 compared to the year-ago period. Net sales for the company fell by 8% q-o-q in the June quarter of FY11.

Moneylife had earlier reported (http://www.moneylife.in/article/8/2260.html), on how the southern region is expected to be worst hit due to oversupply in the market.

In western India, Gujarat-based Ambuja Cements reported a 21% rise in net profits, while Binani Cement's net profits fell by 60% in the first quarter of FY11 compared to the corresponding quarter last year.

While the cement sector's performance is expected to be sluggish in the monsoon quarter, the road ahead for these companies still remains rocky. Analysts expect cement prices to continue to remain under pressure in the coming quarters as well, due to weak demand and oversupply. While cement prices all over India are expected to remain under pressure, the northern and eastern parts are likely to witness more price corrections. In the long term, not much relief is expected for these cement companies (http://www.moneylife.in/article/8/7237.html). — Moneylife Digital Team