Home / Markets / Stock Markets /  Inadequate price hikes hurt profitability of cement makers
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NEW DELHI : Cement producers ACC Ltd, Ambuja Cements and UltraTech have reported a 20-56% drop in their per tonne profitability on a year-on-year (y-o-y) basis, driven by slower pace of product price increases even as cost pressures rose at a faster rate, affecting their June quarter (Q1FY23) performances.

To be sure, cement prices did see some improvement in Q1FY23 across the country. The quarter remained seasonally strong with construction activity gaining momentum before the onset of monsoons. All-India average cement prices per 50kg bag improved by about 5.4% sequentially and 4.6% y-o-y in Q1, as per ICICI Securities data. Cement prices improved by 6-8% in most of the regions with the exception of southern and western India. These, however, were not adequate to mitigate the impact of increased costs.

US pet coke prices jumped at an average of 113% and 25% y-o-y and sequentially, as per analysts at Motilal Oswal Financial Services. International coking coal prices also remained significantly high while coal supplies in the country were tight due to rising power sector demand. High crude oil prices added to the woes and led to pressure on logistic costs too. The same meant that companies such as ACC, Ambuja and even UltraTech saw operating expenses per tonne rise by about 19-22%.

Blended realizations though did improve about 3% both y-o-y and sequentially for Ambuja Cements and 2-4% for ACC. UltraTech posted a much better increase of 10% y-o-y and 5% sequentially leading to better-than-expected performance. The companies also received support from higher sales volumes. UltraTech’s Grey Cement (India) volumes at 23.73 million tonne (MT) were up 19% y-o-y. Nevertheless, UltraTech still saw Ebitda at 3,204 decline from 3,512 crore at the consolidated level, due to higher input costs. Net profit also fell to 1,584 crore from 1,703 crore in the year-ago quarter.

Even ACC’s sales volume at 7.56 MT improved 10.5% y-o-y and Ambuja Cements’ 7.39 MT was 15% higher y-o-y. However, this could not prevent a 51% y-o-y fall in ACC’s Ebitda to 426 crore, and a 29% y-o-y drop in Ambuja Cements’ operating Ebitda.

Moving forward too, all eyes will be on how these firms improve their cement realizations. However, not much is expected in the ongoing monsoon season which traditionally results in a slowdown in construction activity. The current quarter performance may still remain under pressure.

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