Net profit growth rate declines 85%, India

Net profit growth rate declines 85%, India
13 June 2007

The net profit growth rate of Indian cement firms declined to 85 per cent in the fourth quarter ended March 2007 compared with 150 per cent in the first three quarters. The Q4 sales growth was subdued at 35.2 per cent compared with 51.2 per cent in Q3, 40.5 per cent in Q2 and 37.3 per cent in Q1.
Government intervention curbed the industry’s pricing power in a traditionally strong quarter. After abolishing the customs duty on imports in January, the government increased the excise burden through a dual excise duty regime in February and March, abolished the countervailing duty and special additional duty on imports. As a result, cement firms increased their focus on power cost amid rising freight costs.
Trigger: The import duty reduction from 12.5 per cent to nil made imports cheaper by Rs20 a bag. The excise duty was raised to Rs 600/t from Rs 400/t. Cement producers passed on the rate hike to consumers almost overnight, raising prices by Rs15 a bag.
The government put pressure on cement producers to freeze the hikes following their refusal to roll back the pass-on of excise duty. With the CVD on cement reduced to zero, the import parity price reduced by Rs23 a bag.

Outlook: The cement despatches in the first two months of 2007-08 was almost static at 8.68 per cent compared with 8.08 per cent in the corresponding period last year. According to analysts, the net price realisations have remained unchanged in the last four months, with the exception of southern and western regions.
Though procedural issues have delayed imports, the excess capacity creation of 65 million tonnes by the end of 2008-09 remains a major concern. The industry’s volume growth is slowing down owing to the rising capacity.
Moreover, it is not able to reap the benefit of higher prices owing to government controls. The cement stocks have underperformed the market by 30 per cent since the announcement of the price-control measures.
Published under Cement News