BOMBAY, 16 August 2004 — If steel is the edifice of any economy, it is cement which gives shape to that edifice. Previous week, the steel retail prices and steel stock prices soared. Previous week, there was a lot of activity in cement stocks. And last was not without reason, after all, the stock market is the barometer of the economy.
So taking a cue from the stock market, we unearthed a story in the Indian cement sector too.
Cement companies have been doing well. There are reports that there have been strong dispatches figures for July 2004. Due to the delay in rains, construction activity continued at normal levels ensuring strong sales. The three major cement manufacturers of India — Gujarat Ambuja Cement (GACL), Grasim and ACC reported very strong dispatches. GACL’s shipments added on 20 percent to 11.43 lakh tons from 9.54 lakh tons in July 2003. Grasim’s deliveries spurted 12.5 percent to 11.41 lakh tons. And ACC’s dispatches rose 7.6 percent to 12.79 lakh tons.
There is now an air of optimism surrounding the cement sector. The earlier fears of overcapacity seem to now be a thing of the past. Analysts now say that the demand-supply balance is turning in favor of the industry, with no major fresh capacities on the cards. The government’s thrust on infrastructure and rural housing projects also augurs well for the industry.
There has been a consolidation in the cement sector. In July 2004, Grasim acquired a 51 percent stake in Ultra Tech CMEA Ltd., which was spun off from Larsen & Toubro Ltd. Grasim and Ultra Tech now control about a fifth of India’s total installed capacity. In the entire industry as a whole, the Grasim (and Ultra Tech CMEA) and ACC-GACL combine control 43 percent of the market.
Yet, the growth of cement has been quite lopsided in the country. With state-funded construction projects on the decline, cement demand in the southern states has fallen, with Andhra Pradesh and Tamil Nadu turning out to be the worst performers. Demand for the region as a whole has nose-dived by a whopping 11 percent during the first quarter. Ironically, south is the largest consumer of cement and this first four months of this fiscal, it is the only region to have reported a fall.
Cement demand in Tamil Nadu fell by 15 percent in April-June period to 19.5 lakh tons, while in Andhra Pradesh too, it fell 15 percent to 17.7 lakh tons. The demand declined in Karnataka, which was till recently growing at a frenetic pace, was 10 percent to 18.1 lakh tons. In Kerala, the demand faltered by 8 percent to 13.5 lakh tons during April-June period. Not surprisingly, Madras Cement and India Cements, the two leading players in the region, reported lower dispatches.
The only solace during the first quarter, apart from the higher realizations, which grew 15 percent year-on-year, is the strong demand in the northern states. Cement demand in the eight northern states, which also includes smaller states such as Uttaranchal and Jammu & Kashmir, have grown by 9 percent during the current fiscal, with Delhi reporting the highest growth at 27 percent. Cement demand in the east was flat at 2 percent, while in the western region, the growth was pegged at 7 percent, primarily due to higher volumes in Gujarat, where demand shot up 19 percent during the first quarter.
A major plus for the cement sector has been the rising prices of realization. Cement prices fell marginally in Mumbai by Rs.2-3 last week, even as wholesale prices at Rs.160 per bag currently, are higher by Rs.15-20 per bag as compared to the corresponding period last year.
Dealers say cement companies have been able to hold on to prices due to the late arrival of the monsoons, although the coming weeks could see a price reduction.
Cement companies have reported strong Q1 results on the back of firm cement prices. Infact most of the companies have posted a healthy bottomline growth during the financial year 2003-04 piggybacking higher sales, improved price realization and lower interest costs.
ACC, the largest industry player, leads the pack with an 84 percent rise in net profit for the quarter ended June, even though cement volumes remained flat at 38.9 million tons. The Aditya Birla group flagship, Grasim Industries, reported a 68 percent rise in net profit for Q1. Gujarat Ambuja Cements, recorded a 50 percent jump in net profit for the June quarter. Ultra Tech CMEA has not announced its quarterly results yet.
