INDIA: AP cement industry may see dip in Q1 topline, profits

Cement companies in Andhra Pradesh are likely to see a dip in revenues as well as profits for the first quarter ending June this year due to an unlikely factor of sand shortage faced by the housing sector in the state.

Industry sources said a decline of around 15 per cent in revenues was expected on account of the stoppage of sand quarrying by the AP high court starting April 1. The court had cited a Supreme Court ruling, according to which environmental clearances are compulsory for sand quarrying in areas beyond 5 hectare.

The court decision had impacted both the supply and the open market prices of this important input, which commanded as high as Rs 30,000 per truck load affecting the construction activity.

The resulting volume pressures saw a decrease of about Rs 20 per bag in cement prices.

“As against the normal anticipated movement of 1.8-1.9 million tonne of cement a month in the first quarter, the actual despatches have been about 1.5 to 1.6 million tonne,” said S Sreekanth Reddy, executive director of Sagar Cements limited.

In a year, the first and the fourth quarters would normally provide 65 per cent of the volume sales and profits to cement companies as the construction activity continues unhindered due to dry weather conditions between the December-June period, according to Reddy.

The situation on sand supplies started easing at the end of May with the state government announcing alternative steps, including allowing sand quarrying in patta lands as well as in reservoir areas in the form of desilting of the reservoir beds, according to the mines department. The department has also initiated steps to get environmental clearances in sand reaches that were yet to be tapped, the officials recently said.

In the January-March quarter of FY12, cement companies in AP had despatched about 5.2 million tonne, while the same is expected to be about 14.9 million tonne in the current quarter, according to industry sources.

With lower offtake in the local market, the companies have been pushing additional quantities into neighbouring states at the cost of profit margins as that involves higher transportation costs.

“Taking these factors into account, the likely erosion in the bottom line would be around 10 per cent during the quarter,” a senior official of a Hyderabad-based company told Business Standard.

There has been a marginal improvement in cement sales in the last quarter, as compared to the corresponding previous quarter, though the cement consumption as such had come down from a record peak of 2.4 million tonne a month in 2009-10, according to industry figures.

However, the companies are hopeful of making up for the current scenario in the subsequent quarters on the back of the likely restoration of sand supplies as well as the likely increase in government spending on irrigation and urban infrastructure.