Cement companies and realty developers in the Telangana-Andhra Pradesh region are at loggerheads over the sudden spiralling of prices of the building material in the last few weeks.
The bitter truth is that both cement and realty prices had hit near rock bottom before Andhra Pradesh was bifurcated on June 2. Cement prices plummeted to around ₹200 a bag of 50 kg, while real estate prices were stagnant in most places or down in some.
With hopes of economic revival following political stability after the bifurcation, cement companies scaled up prices.
In a span of 45 days (by mid-July), the average price was hovering between ₹290 and ₹320 a bag (up from ₹200-240) in Hyderabad.
In Bangalore, the current price is ₹345-370, while in Chennai it is sold at ₹310-340.
Builders’ view
This rise, at a time when there was no growth in demand, sparked opposition from builders’ associations, which alleged that the price increase was “unwarranted, unilateral” and a result of “cartelisation” in the cement industry.
In protest against the “unreasonable” price rise, builders boycotted cement purchases for three weeks last month.
“The price rise is only due to cartelisation. The Government must intervene and resolve the issue. We are also contemplating taking up the matter with the Competition Commission of India,” C Sekhar Reddy, National President, Confederation of Real Estate Developers' Associations of India, had said earlier.
Cement firms’ stand
Cement-makers have a different story to tell. According to S Anand Reddy, Joint Managing Director of Sagar Cements, over 42 per cent of cement price consists of excise duty and sales tax on which the manufacturers have no control. Further, the input costs (power, coal and diesel) had gone up substantially since FY-2012. The power tariff had risen by 89 per cent, domestic coal by 46 per cent and diesel by 39 per cent. Besides, term loans and working capital costs had increased by 18 per cent, say cement makers.
“If you factor in all these increases, the cement price is still lower than what it was during the same time last year. So, all these increases in inputs costs are adding to the losses of cement manufacturers,” Reddy told BusinessLine.
The cost of production per bag is ₹182.75. “We need to add ₹67.50 average freight cost and ₹40 excise duty and ₹45 VAT (value-added tax), which brings the price to ₹335.25. This is the minimum viable price at which cement has to be sold,” he argued.
Cement prices have been highly volatile in the last four years. It fluctuated from ₹140 to ₹280 during 2010-11. In the succeeding next two years, it hovered around ₹260-292, while in 2013-14, it was at ₹215-228.
Cement cost
Cement makers also say the commodity constitutes just 4-5 per cent of the entire construction in the non-luxury segment homes.
According to a recent study by UltraTech, an increase of cement price by ₹100 a bag results in an additional cost of ₹44.85 a sq ft (2.6 per cent for sq ft).
Severe crunch in capacity utilisation has also taken a toll on companies. Out of an installed capacity of 53 million tonnes (mt), the despatches in Andhra Pradesh are only at 8 mt. In Telangana, out of 28 mt total capacity, only 7 mt is the demand.
States’ intervention
The State Government of Telangana had tried to sort the issue out by holding talks with both sides.
It led to the cement firms partially rolling back prices. On the other side, the Andhra Pradesh Government is also asking the firms there to push down the prices.
The bottom line, however, is that the cement industry wants rebates from the Governments on taxes, while the builders want new projects and business sentiment to pick up with some welcome decisions from the Governments and consumers.
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