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New UserRural demand helps top 4 cement firms expand margins
18 Aug 2016
Improvement in cement demand from rural housing and road projects
has enhanced operating margins of top four cement companies by capacity in the range of
49 per cent in the June quarter. In the second half of the fiscal, with construction activities
picking up, cement demand is expected to grow 10 per cent.
Operating margins of UltraTech Cement, ACC, Ambuja Cements and Shree Cement grew in
the range of 415 per cent in the June quarter on a yearonyear comparison. AllIndia average
cement price remained flat at Rs 310320 per 50 kg bag.
With the exception of the western region, where demand was weak due to drought and low
construction activities, demand in the North and South has been encouraging thanks to the
higher construction activities in rural housing, road projects, and creation of two new states.
Over 60 per cent of cement demand comes from housing and construction activities of which rural housing demand has a high share. As a
result, cement prices have been firm in the northern, southern and eastern regions trading in the range of Rs 310340 per 50 kg bag.
Due to these factors, cement demand grew by close to 6 per cent in the June quarter compared with the 1.5 per cent increase in the
corresponding quarter of the previous year. A common factor which has helped the top four companies in boosting their operating profit
was savings on fuel costs.
Due to benign pet coke prices, the power and fuel costs for all top four cement companies fell in the range of 1520 per cent. Being
geographically diversified, UltraTech, ACC, Ambuja Cements and Shree Cement benefited from strong demand in the northern, southern
and eastern regions and their operating profit grew in the range of 2540 per cent in the quarter on a yearonyear basis. Also, net profits
of these companies grew in the range of 2540 per cent for the qu arter under review.
Among the aforementioned companies, Shree Cement showed exceptional performance since the company is lowest cost cement
producer and its presence in northern, central and eastern markets where demand has been robust. The company's net profit jumped
more than three times to Rs 507 crore in the quarter, while net revenues grew by 28 per cent to Rs 2,198 crore on a yearonyear
comparison.
For FY17, cement demand is expected to grow by 7 per cent. To achieve this, demand should grow by 910 per cent in the second half of
the present fiscal.This is attainable as demand picks up in the second half of a fiscal due to seasonality of business. It is estimated that the
government plans to invest Rs 2,21,246 crore on infrastructure which includes roads and railways in FY17.
A significant part of these investments would be in rural areas. Also, demand is expected to be robust due to faster pace of clearance of
infrastructure projects and the new hybrid road model where the government would bear 40 per cent of costs of a road project.
Source:ET