India: cement companies feel input cost heat

India: cement companies feel input cost heat
Published: 03 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 per cent (41 per cent in H1 of 2007-08), Shree Cements and India Cements had 34 per cent (46 per cent) and 34 per cent (39 per cent).

“There was extreme cost pressures, despite which we have maintained our EBIDTA amount. Our margins have shrunk from 39 per cent (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 INR4173/t in the July-September quarter against INR3709 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 per cent from 30 per cent, UltraTech recorded 27 per cent as against 35 per cent, Grasim’s margin shrank to 28 per cent from 34 per cent while that of Ambuja was 31 per cent as against 37m per cent during the first half of 2007-08.

“Clearly cement companies are facing the heat on increased input costs. Fuel and power roughly constitute 60 per cent of cost of production and coal another 30 per cent. Between first half of last year and first half of this fiscal, coal prices have shot up to INR5100/t as against INR3500/t 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 INR2473, while for Madras Cements it was INR2545. Ambuja’s cost was INR2546 and Shree Cements INR2609. For ACC and UltraTech, the cost per tonne was INR2809 and INR3197 per tonne respectively.

ICL announced its financial results on Friday. It earned a net profit of INR134 crore for the quarter ended September 2008 as against INR223 crore for the corresponding quarter in the previous year. Its revenues were INR1095 crore (INR891 crore).