New Delhi: Major cement firms, facing pressure from the government to cut prices, are hit by a sharp rise in the raw material cost while profit margins remained minimal or without growth, an Assocham study revealed. The study pointed out a big rise of 42 per cent in raw material cost, much higher than growth in the profit margins in the last quarter of 2007-08.
Leading firms, including Grasim Industries, Ambuja Cement and ACC registered minimal or no growth in their net profits, an Assocham Eco Pulse (AEP) study found. Ambuja Cement reported a drop of 42 per cent in its net profit, while ACC showed no growth and Grasim Industries' bottomline was restricted to nine per cent, the study said.
"As inflationary pressures have gripped the economy across commodity segments, the cement sector seems to be one of the worst hit," it said. The wholesale prices of cement surged by 8.5 per cent during this period, it said. Key raw materials used in production have recorded a huge rise in prices. While the wholesale prices of limestone grew by 13.9 per cent, fire clay showed a rise of 30 per cent.
"Power and fuel cost, which constitute 60 per cent of the total operating expenditure of the cement companies have increased by 24 per cent in the fourth quarter. This is on account of the 10 rise in coal prices," Assocham President Venugopal Dhoot said.
Ambuja cement saw a 68 per cent increase in raw material cost, against a 42 per cent decline in profit and 18.6 per cent growth in sales. ACC's sales grew by 7.2 per cent. Grasim Industries registered a 26 per cent increase in input costs, leading to 18.7 per cent rise in sales and a net profit restricted to nine per cent, Assocham said. Ultratech Cement recorded a 35 per cent rise in input cost with only 9.3 per cent growth in sales, while input cost grew 86 per cent for Binani and 51 per cent per cent for Dalmia Cement.
"The continued rise in raw material cost may prove detrimental to expansion plans of the companies in view of their inability to share the cost burden with consumers," the study said.
Most companies are working at 90-100 per cent capacity and plan to raise capacities in view of the huge demand from housing and infrastructure projects. Cement remains one of the highest tax items in the country. The differential excise duty structure introduced in Budget 2007-08 was further revised upward in Budget 2008-09, where excise duty on bulk cement was increased from Rs 400 per tonne. Excise duty on cement clinkers was raised from Rs 350 per tonne to Rs 450 per tonne.
Growth in cement production declined from 9.5 per cent in April-February 2006-07 to 7.5 per cent in the corresponding period of previous fiscal, the study added.
More summaries about the Double Whammy for Cement Cos