India: infrastructure projects boost cement cos’ realisation

India: infrastructure projects boost cement cos’ realisation
Published: 11 August 2009

Cement companies seem to have benefited the most in the first quarter of financial year 2009-10 from the slew of infrastructure projects announced by the Government.

Besides, the sharp drop in operational cost with fall in coal prices and an average increase of INR20 a 50kg cement bag has worked wonders for companies.

Cement companies’ realisation has gone up not only year-on-year basis but also sequentially.
UltraTech Cement’s quarter-on-quarter realisation was up 14 per cent, Shree Cement’s rose 13 per cent, ACC’s 12 per cent, Ambuja Cement’s six per cent and Grasim Industries’ three per cent.

Improvement in UltraTech’s realisation was largely due to five per cent increase in sales to INR1953 crore and 5.4 per cent fall in power and fuel bill.

During the first quarter, the company has commissioned 1.2Mta of capacity at Andhra Pradesh Cement Works.

Grasim Industries added capacities aggregating 2.9Mta in the June quarter with 1.6Mta at Shambhupura in Rajasthan and 1.3Mta grinding unit at Aligarh in Uttar Pradesh commissioned.

ACC posted a better realisation despite five per cent drop in production at 5.42Mt in June quarter against 5.73 mt in the March quarter.
Its power and fuel bill was down nine per cent at INR378 crore in the June quarter against INR414 crore recorded in the March quarter.
Ambuja Cement’s output was down six per cent in June quarter at 4.8Mt against 5.1Mt.

The southern region, which had registered a growth of over 14.5 per cent CAGR (compounded annual growth rate) between FY’05 and FY’09 against the all-India growth of 9.5 per cent, has started slowing down.

Consumption in first quarter of FY’10 dropped to 3.5 per cent YoY against all-India growth of 11.7 per cent.

Higher capacity addition has led to utilisation levels dropping to 80 per cent in southern zone.

“Price corrections and discounts have already started in the southern and western markets compared to northern, central and eastern regions, which have registered robust demand and rise in prices,” said Mr Rajan Kumar, research analyst, Centrum Broking.
New capacity addition to flow from second quarter is likely to put pressure on prices.

About 6 mtpa of capacity is being added in the southern and western markets alone. ACC plans seven Mta expansions at its plants in Bargarh in Orissa, Wadi in Karnataka and Chanda in Maharashtra. The expansion at Bargarh is nearing completion and may come on stream from August and September.

The Wadi plant with its satellite grinding will be commissioned in third quarter of FY’10, while Chanda was schedule to be completed mid-2010.

Moreover, the likely commissioning of 48Mta capacity by FY’10 will put pressure on the utilisation ratio and realisation of cement makers, said an analyst.