For India Cements, the turning business cycle brings no cheer
It is one thing to be part of an economic upcycle and another to benefit from it. Concerns about India Cements Ltd came to the fore after the company reported a sharp fall in earnings for the September quarter. Profit fell to a paltry ₹1.4 crore from ₹23.7 crore a year ago, triggering a sell-off in the stock on Monday.
Profit slumped even as sales volumes grew 14%, reflecting improving demand conditions. According to the company, even the southern region, which has been under pressure, registered a healthy double-digit growth in cement production due to infrastructure demand from the Andhra Pradesh and Telangana governments. The continuing thrust on infrastructure spending should help maintain positive momentum in volumes. “The pick-up in cement demand witnessed after sluggish or nil growth for several years is expected to continue,” India Cements said in a statement.
But the seemingly improving demand is not helping much. Excess supply means cement prices continue to remain under pressure in south India. Add to this the increase in input costs (imported coal and petcoke), and the company’s earnings came under pressure. As demand gathers pace, India Cements expects the market to achieve equilibrium leading to better prices in the coming months. “Management expects significant improvement in cement prices in Q4FY19, considering the strong demand momentum,” said Emkay Global Financial Services Ltd in a note.