Indian cement companies feel input cost heat

Indian cement companies feel input cost heat
Published: 04 November 2008

Driven by increased costs of power and fuel coupled with high coal prices, cement companies across the country face the heat on their earnings margin for the first half of the fiscal. Interestingly, companies in South India seem to have fared better their counterparts in other parts of the country, thereby signalling higher prices and better cost efficiency, according to results announced by companies .

The unaudited results declared by cement manufacturers shows Madras Cements, Shree Cements and The India Cements seem to be those which have the highest EBIDTA (earnings before interest, depreciation, taxation and amortization) margins in the industry. While Madras Cements had a margin of 35% (41% in H1 of 2007-08), Shree Cements and India Cements had 34% (46%) and 34% (39%).

"There was extreme cost pressures, despite which we have maintained our EBIDTA amount. Our margins have shrunk from 39% (during the first half of previous fiscal) as coal and fuel costs were very high. However, we have maintained our earnings in these difficult times. More importantly, our gross realisation has increased to Rs 4,173 per tonne in the July-September quarter against Rs 3,709 during the year-ago period, which means we were able to hike prices," N Srinivasan, MD of India Cements, said.

The EBIDTA margins of ACC has fallen to 26% from 30%, UltraTech recorded 27% as against 35%, Grasim’s margin shrank to 28% from 34% while that of Ambuja was 31% as against 37% during the first half of 2007-08.

"Clearly cement companies are facing the heat on increased input costs. Fuel and power roughly constitute 60% of cost of production and coal another 30%. Between first half of last year and first half of this fiscal, coal prices have shot up to Rs 5,100 a tonne as against Rs 3,500 a tonne for companies in South India," sources said.

Another important reason why South Indian companies have managed higher EBIDTA margins was because the cost of production of one tonne of cement was cheapest. For instance, India Cements produced a tonne a cement at Rs 2,473, while for Madras Cements it was Rs 2,545. Ambuja’s cost was Rs 2,546 and Shree Cements Rs 2,609. For ACC and UltraTech, the cost per tonne was Rs 2,809 and Rs 3,197 per tonne respectively.

Source: The Times of India