Cement companies that have milked gains from the current rosy export scenario may have to make all the hay they can while the sun still shines.
Mr Kumar Mangalam Birla, Chairman of UltraTech, one of the larger beneficiaries of the export boom, did not mince words when talking of the future at the company’s AGM last week.
UltraTech had recently reported bumper export sales. "The export boom to the West Asia is subject to commissioning of over 30Mta new capacity in that region over the next 18 months," he said.
Currently, exports for those companies, which have their manufacturing units close to the west coast, are very attractive. Cement prices in the West Asia have gone up almost 60 per cent to nearly US$44/t over the last year; and even general international prices are a little less than US$42/t.
Of the larger cement majors, the beneficiaries have been UltraTech and Gujarat Ambuja Cement Ltd. UltraTech’s volume sales in 2004-05 were just three per cent higher than the previous year’s. But realisations rose 14 per cent, largely pulled up by exports, which amounted to close to 22 per cent of sales. Realisation from clinker exports was higher by as much as 31 per cent. This aided the company in reporting Rs 24.7 crore as profit before exceptional items for the year (exceptional items dragged the company to report a net loss of Rs 52.1 crore).
For the first quarter of the current year too, exports amounted to 4.15 lakh tonnes as against 1.9 lakh tonnes in the corresponding quarter of the previous year. The realisation from exports fetched Rs 1815/t as against domestic realisation of Rs 1320.
Gujarat Ambuja got 15 per cent higher realisation from exports than from the domestic market during 2004-05 (year ending June), according to Mr Anil Singhvi, Executive Director, Gujarat Ambuja.
Export volumes were 1.7Mt for 2004-05, i.e. 15 per cent of the company’s total sales. "This year, we hope to increase that to between 17 per cent and 18 per cent," said Mr Singhvi. "If only we can feed the demand in West Asia, that would be fantastic. This should last for some time at least."
But, if huge capacities come up in West Asia, Indian cement manufacturers would have to depend on domestic market for their staple pasture. And the domestic market is a bumpy road. There are surplus situations in several regions of the country, notably the South and to some extent, the West.
Currently, apart from making use of rising demand and better realisations, manufacturers are doing everything to cut cost and increase operational efficiency.
Overall, demand for cement is expected to grow around eight per cent this year. But price is expected to grow only by six per cent or so, said Mr Singhvi, who is surprised that for some years cement has trailed the GDP in growth whereas some time ago it used to be ahead of it.