Indian cement prices are on a decline and a shortage of railway wagons has crimped supply. The recent increase in diesel and petrol prices is expected to dent profitability further. Cementing margins thus becomes easier said than done.
“Margins will definitely dip further depending upon the volume. Also, the increase in diesel cost, which is around Re 1 per bag, would impact the margins as this price cannot be passed on to the consumer in the present scenario,” HM Bangur, managing director, Shree Cement said.
Ironically for the industry, leading the decline in prices is the southern region, which had until now been the growth engine. Though prices did not decline much in May, parts of the country, such as Gujarat and Rajasthan, did feel the pinch.
Worsening the blow, dispatch numbers have been trending down, too. Year-on-year growth in dispatches fell to 8% in May as compared with 8.9% in April and 10.2% in March. Among others, Jaiprakash Associates, India Cements and Shree Cements saw despatches rise, while ACC saw a negative growth of 2.2%.
Bangur said Shree Cement has increased despatches to Uttar Pradesh and Punjab with a growth of 30% and 20%, respectively.
Analysts believe it would be difficult for the manufacturers to maintain margins for the third quarter.
“The margins are compressing and the increase in fuel prices will impact Rs 1-1.50 per 50 kg bag, which means a dip of 2-3% on Ebidta (earnings before interest, tax, depreciation and amortisation) for almost all the players. Some, like Sagar Cements in AP, who are entirely dependent on road, will be impacted more. The cost push is around Rs 30 per tonne,” said an analyst from a domestic brokerage.
Ambuja Cements, though, expects better margins as it is slated to add Rs 190 crore to the topline this quarter due to clinker commissioning.