Cement Companies Profits Under Pressure
ICRA in its recent report has painted a slightly grey picture for the cement industry as despite pick-up in cement demand in first quarter of 2018, higher coal, pet coke prices and freight costs are likely to put pressure on the profitability margins of cement companies.
Domestic cement demand registered a very healthy growth of 14.2 % in the YOY first quarter of 2018. This buoyancy has however not been translated into better financials for the cement sector. The rising production and supply have restricted any significant increase in cement price, which remained flat in Q1 2018 on a QOQ basis. They declined by around 5%-6% on a All-India level in Q1 2018 on a YOY basis.
Adding to this, rising costs continues to put pressure on the profitability of the cement companies in 2018, the report said.
Overall, cement demand is slated to show a growth of around 6%-7% in 2018, primarily driven by a pick-up in the affordable and rural housing segments, infrastructure, road and irrigation projects.
Cement production remained in the range of 27 MPTA-28.6 MPTA during the April 2018-June 2018 period, clocking the highest at 28.6 MMT in June 2018. In April 2018, the production continued to remain steady at 27.3 MMT, an increase of 16.7 % on a YOY basis. It increased by 2% on an MOM basis in May 2018 to 27.8 MMT and by 2.8 % in June of 2018.
It has continued to remain healthy since January 2018 and this was supported by the demand in Andhra Pradesh and Telangana, driven by irrigation, low cost housing and infrastructure projects, the eastern markets driven by low cost housing and infrastructure demand and western Indian markets led by execution of infrastructure projects. Rural housing saw a pick-up, post monsoons, due to the improvement in the rural economy, following normal monsoons.
In Q1 of 2018, cement prices declined in most markets such as Delhi, Chandigarh, Kolkata and Hyderabad. However, prices in Ahmedabad have been an exception with a 2.8% higher cement prices. Last year, in April 2017, cement prices were hiked, post demonetisation in most markets, which resulted in higher cement prices in Q1 2017. Also, the demand and the prices are likely to remain under pressure in Q2 2018 due to the monsoons.