India Cements Ltd reports improvement in its operating performance

The cement industry has witnessed negative growth of 5% in August and 2% in September 2019, over that of the previous year.

Further analysis reveals that while there was some growth in cement production in North, West and Central regions of India, the South had de-grown by more than 10% during the second quarter of the current fiscal, and a experienced a cumulative 6% decline in growth up to September 2019.

The steep fall in demand in Andhra Pradesh and Telengana accounted for a major portion of the shortfall in the demand in the South. Many of the major projects in these states are expected to be revived after a review by the governments in the near term.

With the huge supply overhang in the South of India, the cement prices, which saw improvement from the month of February 2019, were under pressure, and due to fall in the southern markets from the month of August 2019, impacting the bottom line of the players concentrated in the region. The impact was more severe in the case of players situated in Andhra Pradesh, Telengana and Coastal Maharashtra markets. With a normal monsoon predicted, the demand season is expected to pick up, allowing for a reasonable increase in price of cement in the near term.

Given the tough market conditions influenced by the lower demand, the performance of the company can be considered to be satisfactory, with 4 of its plants situated in the surplus states of Telengana and Andhra Pradesh, where the contraction in demand for cement was more pronounced.

The capacity utilisation of the company during the quarter was 68%, compared to 77% in the same quarter of the previous year.

The overall cement and clinker volume was at Rs.2.7 million t for the quarter, as compared to the R.s.3.8 million t – a drop of 13%.

Despite a lower volume, the variable cost decreased by 3% compared to previous year, and with improvement in net plant realisation by 4% over that of previous year, the overall EBIDTA was at Rs.151 billion, compared with Rs.159 billion in the previous year.

The interest cost was at Rs.820 million against Rs. 950 million, while depreciation was at Rs.610 million/620 million and the consequent profit was marginally higher at Rs.78 million against Rs.14.3 million in the previous year.

After taking into account taxation provision and adjustments, the profit after tax stood at Rs.90 million against Rs.14.3 million in the previous year.

These results have been taken on record by the Board of Directors at their meeting held on 11 November 2019.

The Indian economy is expected to see a moderate growth of 6.1% to 6.2% this year, as per the revised estimates by RBI, IMF and World Bank, due to global headwinds, lower consumption and financial crunch.

There are hopes of recovery and revival in consumption in the second half of fiscal. A series of measures announced by the centre (apart from the cut in Repo rate by RBI and lending rates by banks) are expected to ease the liquidity crunch and credit flow.

Sufficient rainfall reported during the South West monsoon season and forecast of normal rainfall in the current North East monsoon season augur well for rural economy. Post monsoon, cement demand is expected to pick up, aided by the revival in housing and construction activity and the increased public spending on infrastructure projects.

Read the article online at: https://www.worldcement.com/indian-subcontinent/12112019/india-cements-ltd-reports-improvement-in-its-operating-performance/