Negative demand growth in two major States and a steep fall in prices across the South have combined to pull down substantially the sales and profit numbers of India Cements for the first quarter ended June 2010.
The operating income has dropped to Rs. 882.79 crore for the quarter under review from Rs. 960.25 crore in the same quarter last year. Other income, at Rs. 26.37 crore, includes a profit of Rs. 25.76 crore arising out of sale of investments. Thanks to this, the company has managed to post a net profit of Rs. 24.98 crore, down from Rs.144.28 crore. However, physical sales of cement have gone up 11 per cent to 26.52 lakh tonnes, up from 23.94 lakh tonnes. A steep drop in net plant realisation by Rs. 672 per tonne has sent the critical sales and profit numbers for a toss. “This is indeed the worst case scenario for us,” admitted N. Srinivasan, Vice-Chairman and Managing Director, at a press conference here on Monday.
Putting things in perspective, Mr. Srinivasan pointed to the existing huge demand-supply mismatch. As against a demand of 65 million tonnes, the cement capacity in the South hovered around 110 million tonnes, he said. He was hoping that the manufacturers in the region would demonstrate lot more maturity and not sell cement below the variable costs.
The problem had been accentuated by the rising cost of materials, labour and services. In this context, Mr. Srinivasan pointed to the upward revision in royalty on limestone and also the increase in the prices of fly ash by thermal power plants in Tamil Nadu. The Vice-Chairman said India Cements would look to pushing its sales in Tamil Nadu and Kerala where prices were better than those ruling in the other two Southern States.