Cement Industry Faces Turbulence Amid Price Declines and Profit Woes
November 10, 2024, 4:54 pm
Location: India, Maharashtra, Mumbai
Employees: 10001+
Founded date: 1983
Total raised: $500M
The cement industry in India is currently navigating a stormy sea. Recent reports reveal a significant decline in margins for cement manufacturers during the September quarter. This downturn is primarily attributed to falling prices, which have squeezed sales realizations. Smaller players like Nuvoco Vistas Corp, JK Cement, Birla Corporation, and Heidelberg Cement are feeling the pinch. Their topline and sales volumes have taken a hit. In contrast, industry giants such as UltraTech Cement, Ambuja Cement, and Dalmia Bharat are faring better, thanks to strategic acquisitions that have fortified their market positions.
The backdrop for this decline is a challenging environment. An extended monsoon season, coupled with floods and sluggish government demand, has created a perfect storm for the industry. Despite these hurdles, operational costs for power and fuel have remained stable, providing a glimmer of hope.
Price trends tell a stark story. The all-India average cement price dropped 11% year-on-year, from ₹348 per 50 kg bag in June 2024 to ₹330 in September. While there was a slight month-on-month increase of 2%, the overall trend points downward. For FY25, the average cement price is down 10% from ₹365 per bag in FY24. This decline in prices has been a double-edged sword, impacting revenues and profitability across the board.
UltraTech Cement reported a capacity utilization of 68% and a 3% growth in sales volume. However, it also faced an 8.4% year-on-year decline in sales realization for grey cement. Ambuja Cements, while achieving a 9% increase in sales volume to 14.2 million tonnes, saw its EBITDA drop 15% year-on-year to ₹1,074 crore due to lower price realizations.
India Cements, recently acquired by UltraTech, is another casualty of this price war. The company reported a staggering net loss of ₹240 crore for the quarter ending September 30, 2024, a sharp increase from a loss of ₹81 crore in the same period last year. This decline in revenue is a direct result of falling cement prices. For the first half of the fiscal year, India Cements recorded a loss of ₹203 crore, compared to a loss of ₹155 crore in the previous year.
The sluggish demand for cement has been a significant factor in these losses. Cement demand showed negative growth in the first quarter and only a meager 3% rise in the second quarter. This translates to an overall growth of just 1.6% from April to September, a far cry from last year’s growth rate of over 10%. The company’s revenue plummeted to ₹1,017 crore from ₹1,222 crore, highlighting the severity of the situation.
Despite a 17% increase in volume compared to the first quarter, the sharp decline in selling prices has resulted in a drop in net plant realization (NPR) by 13%. This has led to a negative EBITDA of ₹154 crore for the second quarter, a stark contrast to the ₹14 crore EBITDA recorded in the same period last year. India Cements struggled to capitalize on lower fuel costs, particularly pet coke, as low volume levels eroded margins.
The industry’s woes are compounded by external factors. The global operating environment remains complex, with key regions experiencing subdued growth. In India, while steel demand is improving, domestic prices are under pressure due to cheaper imports. This interplay of factors creates a challenging landscape for cement manufacturers.
In the midst of this turmoil, some companies are taking strategic steps to bolster their positions. Macrotech Developers, a leading real estate firm, recently acquired Bain Capital's stake in three industrial and logistics park entities for ₹3.07 billion. This move is part of a broader strategy to enhance rental income and strengthen its foothold in the market.
The Supreme Court is also set to deliver a verdict on a plea from the State Bank of India and other creditors challenging the National Company Law Appellate Tribunal's decision regarding Jet Airways. This case underscores the ongoing challenges within the broader economic landscape, impacting various sectors, including cement.
As the industry grapples with these challenges, the road ahead remains uncertain. Companies must navigate a landscape marked by fluctuating prices, changing demand dynamics, and external pressures. The ability to adapt and innovate will be crucial for survival in this competitive arena.
In conclusion, the cement industry is at a crossroads. With margins under pressure and demand faltering, companies must rethink their strategies. The coming months will be critical as they seek to weather the storm and emerge stronger. The future may be cloudy, but with resilience and strategic foresight, there is hope for brighter days ahead.
The backdrop for this decline is a challenging environment. An extended monsoon season, coupled with floods and sluggish government demand, has created a perfect storm for the industry. Despite these hurdles, operational costs for power and fuel have remained stable, providing a glimmer of hope.
Price trends tell a stark story. The all-India average cement price dropped 11% year-on-year, from ₹348 per 50 kg bag in June 2024 to ₹330 in September. While there was a slight month-on-month increase of 2%, the overall trend points downward. For FY25, the average cement price is down 10% from ₹365 per bag in FY24. This decline in prices has been a double-edged sword, impacting revenues and profitability across the board.
UltraTech Cement reported a capacity utilization of 68% and a 3% growth in sales volume. However, it also faced an 8.4% year-on-year decline in sales realization for grey cement. Ambuja Cements, while achieving a 9% increase in sales volume to 14.2 million tonnes, saw its EBITDA drop 15% year-on-year to ₹1,074 crore due to lower price realizations.
India Cements, recently acquired by UltraTech, is another casualty of this price war. The company reported a staggering net loss of ₹240 crore for the quarter ending September 30, 2024, a sharp increase from a loss of ₹81 crore in the same period last year. This decline in revenue is a direct result of falling cement prices. For the first half of the fiscal year, India Cements recorded a loss of ₹203 crore, compared to a loss of ₹155 crore in the previous year.
The sluggish demand for cement has been a significant factor in these losses. Cement demand showed negative growth in the first quarter and only a meager 3% rise in the second quarter. This translates to an overall growth of just 1.6% from April to September, a far cry from last year’s growth rate of over 10%. The company’s revenue plummeted to ₹1,017 crore from ₹1,222 crore, highlighting the severity of the situation.
Despite a 17% increase in volume compared to the first quarter, the sharp decline in selling prices has resulted in a drop in net plant realization (NPR) by 13%. This has led to a negative EBITDA of ₹154 crore for the second quarter, a stark contrast to the ₹14 crore EBITDA recorded in the same period last year. India Cements struggled to capitalize on lower fuel costs, particularly pet coke, as low volume levels eroded margins.
The industry’s woes are compounded by external factors. The global operating environment remains complex, with key regions experiencing subdued growth. In India, while steel demand is improving, domestic prices are under pressure due to cheaper imports. This interplay of factors creates a challenging landscape for cement manufacturers.
In the midst of this turmoil, some companies are taking strategic steps to bolster their positions. Macrotech Developers, a leading real estate firm, recently acquired Bain Capital's stake in three industrial and logistics park entities for ₹3.07 billion. This move is part of a broader strategy to enhance rental income and strengthen its foothold in the market.
The Supreme Court is also set to deliver a verdict on a plea from the State Bank of India and other creditors challenging the National Company Law Appellate Tribunal's decision regarding Jet Airways. This case underscores the ongoing challenges within the broader economic landscape, impacting various sectors, including cement.
As the industry grapples with these challenges, the road ahead remains uncertain. Companies must navigate a landscape marked by fluctuating prices, changing demand dynamics, and external pressures. The ability to adapt and innovate will be crucial for survival in this competitive arena.
In conclusion, the cement industry is at a crossroads. With margins under pressure and demand faltering, companies must rethink their strategies. The coming months will be critical as they seek to weather the storm and emerge stronger. The future may be cloudy, but with resilience and strategic foresight, there is hope for brighter days ahead.