This Kumara Mangalam Birla company, in its financial performance for the first quarter ended 30th June 2008 has reflected the trend in the cement industry. And the trend looks bleak.
YoY, net sales of the company marginally by 9.57% at Rs.1496 crore while on a QoQ basis, it showed a decline of 6.6%. The same trend was seen on the net profit front too. YoY, it rose by a marginal 2.17% at Rs.265.01 crore but QoQ, it showed a decline of 6.32%.
The rising costs, tapering demand, 6-week ban on cement exports, all these together left a telling effect on the bottomlines of the company. The problem was aggravated further due to the inability to pass on the effect of the rising costs to the consumers. The Govt in its mission to keep inflation under control directed the cement companies to refrain from going in for any price hike and this lid on the prices continues to remain.
At that time, in Q1, cement companies did not have to comprehend with the situation of a fall in the demand or for that matter, a slowing down of activity in the realty sector which was going on at a breakneck speed. But now, with the situation having undergone a complete change, the increased interest rates, all together are expected to keep demand also at bay in Q2.
The company’s biggest cost has been on the price of power and fuel. YoY, it has increased by 27% and QoQ, it has increased by over 4%. This is mainly on account of coal, whose prices have gone up from $78 a tonne in Q1FY’08 to $179 a tonne in Q1FY’09. The impact of rise in coal and fuel prices is about Rs 10 per 50 kg bag. To counteract this situation, it is now scouting for coal mines in Indonesia and South Africa.
Additional new capacities to the tune of 115 million tonne per annum is expected to further compound the situation in the Indian cement sector. The slow down in the economic growth will in all probability lead to a situation of glut from calendar year 2009, with consequent impact on margins.
Currently quoted at Rs.592, cement is not exactly the best sector to get into right now. Those invested, should stay invested with a 15-18 months perspective.
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