Cement: Realising stability - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Cement: Realising stability

Aug 5, 2003

Cement companies have been the victims of weak prices for some time now. But to a certain extent they have themselves to blame. Uncontrolled capacity additions in the past have led to an overcapacity in the industry. Since cement is a capital-intensive industry, in order to recover the huge operating costs involved, the companies have to rely on huge volumes. This often tends to create an oversupply situation in the industry thus dragging down the prices and putting pressure on the operating margins of the companies. The fall in realisations can thus have a considerable impact on the bottomlines of the cement companies. In this article, we will therefore try and study the changes in the price fluctuations in the cement industry and its impact on the bottomlines of some of the major cement companies. The following graph shows the trend in cement prices in the year 02-03

*Prices in the Mumbai market

The above figure indicates considerable volatility in the cement prices. After remaining stable for the first three months, the prices fell by almost 19% in August, before staging a recovery and since then have remained stable. Prices in the Mumbai market have thus fallen on an average by 9% in FY03. Although the figures are for the Mumbai market, fall in the realisations has been varied across different regions of the country. In the southern markets for example, Madras cement, one of the leading players has witnessed a drop in realizations of as high as 22% as indicated from the following table.

FY03 particulars
  Volume Growth Growth in Realizations OPM Net Profit Growth
      FY02 FY03  
ACC 15.0% -10.0% 15.0% 10.0% -30.0%
Gujarat Ambuja 37.0% -9.0% 29.0% 24.0% -8.0%
Madras Cement 10.0% -22.0% 25.0% 24.0% -52.0%

From the table above we notice that, while ACC and Madras Cements witnessed significant erosion of their bottomlines, Gujarat Ambuja has been able to withstand the tide. Gujarat Ambuja’s performance in FY03 however, is an exception because it is not only the most cost efficient producer of cement in the country but also the huge volume growth of 37% (mainly due to its new Chandrapur plant) has helped the company to mitigate the effects of lower sales realizations to a large extent. Moreover, it caters largely to the non-institutional segment such as the housing segment, and hence the dip in its sales realizations has not been as adverse as its peers. Also since the company is June ending, it got the benefit of stable cement prices in the June quarter. This to a large extent helped the company to post a healthy profit growth of 19% in FY03, when all its peers reported a decline in profits.

While realizations have taken a plunge, cement companies have been able to redeem their fortunes due to the strong growth in cement volumes sold by them. This has in a way helped them to restrict the fall in their bottomlines. That apart the cement industry in India has become highly cost efficient in the recent times as a result of sustained efforts by the companies. The interest incidences have also come down, partly due to lower interest rate regimes and partly due to efficient working capital management. Going forward if the industry has to cash in on the strong demand for cement, the gap in the demand supply mismatch will have to be plugged so that the prices stabilize and the competitors will have to stop resorting to undercutting of prices.

The situation seems to be improving as the prices seem to have stabilized in the recent past. With no greenfield expansion in sight anywhere in India, except the 2.6 m tonnes of greenfield expansion by Sanghi Cements which is already operational, demand is likely to inch closer to supply. On the demand front, government initiatives in the infrastructure sector, robust housing sector demand and now the high probability of normal monsoon would mean that the demand is likely to grow by 9% as predicted and may be even more. The realisations hangover may be finally over.

Equitymaster requests your view! Post a comment on "Cement: Realising stability". Click here!


More Views on News

STAR CEMENT LTD Share Price Down by 9%; BSE 500 Index Up 0.1% (Market Updates)

Sep 22, 2020 | Updated on Sep 22, 2020

STAR CEMENT LTD share price is trading down by 9% and its current market price is Rs 78. The BSE 500 is up by 0.1%. The top gainers in the BSE 500 Index are GSK CONSUMER (up 5.1%) and NARAYANA HRUDAYALAYA LTD (up 5.0%). The top losers are STAR CEMENT LTD (down 9.0%) and TORRENT PHARMA (down 5.9%).

RAIN INDUSTRIES Announces Quarterly Results (1QFY21); Net Profit Down 76.6% (Quarterly Result Update)

Aug 25, 2020 | Updated on Aug 25, 2020

For the quarter ended June 2020, RAIN INDUSTRIES has posted a net profit of Rs 344 m (down 76.6% YoY). Sales on the other hand came in at Rs 24 bn (down 29.3% YoY). Read on for a complete analysis of RAIN INDUSTRIES's quarterly results.

JK LAKSHMI CEMENT Announces Quarterly Results (1QFY21); Net Profit Up 12.7% (Quarterly Result Update)

Aug 20, 2020 | Updated on Aug 20, 2020

For the quarter ended June 2020, JK LAKSHMI CEMENT has posted a net profit of Rs 444 m (up 12.7% YoY). Sales on the other hand came in at Rs 8 bn (down 20.8% YoY). Read on for a complete analysis of JK LAKSHMI CEMENT's quarterly results.

ULTRATECH CEMENT 2019-20 Annual Report Analysis (Annual Result Update)

Aug 7, 2020 | Updated on Aug 7, 2020

Here's an analysis of the annual report of ULTRATECH CEMENT for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of ULTRATECH CEMENT. Also includes updates on the valuation of ULTRATECH CEMENT.

BIRLA CORPORATION 2018-19 Annual Report Analysis (Annual Result Update)

Sep 23, 2019 | Updated on Sep 23, 2019

Here's an analysis of the annual report of BIRLA CORPORATION for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of BIRLA CORPORATION. Also includes updates on the valuation of BIRLA CORPORATION.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why am I Recommending Caution? (Fast Profits Daily)

Sep 9, 2020

This is why I have changed my short-term view on the market.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms