Sagar Cement margins under pressure, India

Sagar Cement margins under pressure, India
Published: 15 July 2011

Sagar Cements Ltd, the Hyderabad-based mid-sized cement manufacturer that is setting up a 5.5Mt cement plant with French major Vicat, sees margins under pressure on rising input costs and weakening demand.

The company is also wary of excess capacities in the sector leading to a glut situation.

S Sreekanth Reddy, executive director of the company said, "The average fuel cost per tonne of clinker production went up to INR801 a tonne from INR655 last year primarily due to rise in coal costs. Similarly, the freight cost for June quarter rose to INR23.3 crore from INR16.4 crore a year ago on account of rise in diesel prices and also increase lead distances."

Despite the disappointing market conditions, the merger of its associate firm Amareswari Cements helped Sagar report positive financials for the first quarter ended June 30, it said. Net sales increased 32.33% to INR172.5 crore, EBITDA grew 191.34% to INR40.71 crore.

The company is also facing a drop in demand leading to fall in prices. Andhra Pradesh continues to be a key market for Sagar with 65% of its sales comes from the state. However, the company has reported a drop of about 8% in sales in AP. Similarly, Karnataka, which contributes about 12% to the sales, has recorded a 6% fall. Maharashtra, which has a share of about 9% in sales, is said to be volatile with weak demand. The drop in demand has resulted in the prices going through a downward correction. The prices in AP have dropped by about `3-5 per 50 kg bag, while Maharashtra prices are down INR5-8.

"Added to the challenges being faced by the cement industry, the off-take would be poor resulting in softening of the prices during September and December quarters due to monsoon," Reddy said.