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Indian cement product sector in general and asbestos cement sheet producers in particular reported fall in profits in the quarter ended September 2010. At a time when asbestos fibre prices were racing ahead, and as cement prices too spiked in August-September 2010, the industry faced cost pressures. Besides, the South West Monsoon was good in 2010, which impacted demand. The industry could not pass on the rise in costs amidst sluggish demand, leading to crash in margins.
The cement product sector under performed the Sensex during October 2010. During the month October 2010, BSE Sensex fell by 2% to 20032.34 points on 29th October from 20445.04 points as on 1st October 2010. Similarly companies like Visaka Industries, Ramco Industries, Hyderabad Industries and Everest Industries also fell. Visaka Industries fell by 11% to Rs 104.35, Ramco Industries fell by 9% to Rs 65.65, Hyderabad Industries fell by 11% to Rs 563.5 and Everest Industries by 10% to Rs 228.9 per share. Bucking the trend, Indian Hume Pipe grew by 8% to Rs 173.2 per share.
Visaka Industries' topline grew by 11% to Rs 133.6 crore for the quarter ended September 2010. Conversely the company' OPM fell by 611 basis points to 10.59% and operating profit fell by 29% to Rs 14.15 crore. Similarly the bottom line fell by 25% to Rs 6.77 crore. Visaka Industries is present in building products (asbestos cement fibre sheets) and synthetic blended yarn segment. The company would have reported steeper fall in profits, but for good performance of the synthetic blended yarn segment. This segment recorded 18% rise in sales to Rs 33.23 crore and healthy 39% rise in PBIT to Rs 6.76 crore. On the other hand, the core building product segment managed to report 9% rise in net sales to Rs 100.37 crore, but its PBIT tumbled down by 51% to Rs 7.21 crore in the quarter ended September 2010.
Indian Hume Pipe' sales grew by 2% to Rs 165.14 crore during the quarter ended September 2010. Its OPM was stable at 10.9% as its operating profit grew by 2% to Rs 18.01 crore. Interest expense declined by 18% to Rs 3.54 crore, contributing to the increase in PAT, which grew by 12% to Rs 8.8 crore.
Everest Industries reported a growth of 7% in sales to Rs 144.57 crore for the quarter ended September 2010. Conversely the OPM fell by 167 basis points to 6.6% and operating profit fell by 15% to Rs 9.54 crore. Interest costs declined by 49% to Rs 1.39 crore, thereby restricting the fall in bottom line to 1% at Rs 4.62 crore.
Hyderabad Industries reported a growth in sales by 3% to Rs 147.17 crore. But its OPM declined 1223 basis points to 8.72% and operating profit declined by 57% to Rs 12.83 crore. Depreciation grew by 36% to Rs 4.84 crore resulting in PAT further declining by 66% to Rs 6.01 crore.
For Ramco Industries sales grew by 4% to Rs 100.66 crore. The company' OPM grew marginally by 44 basis points to 18.95% and operating profit grew by 7% to Rs 19.08 crore. Other income declined by 59% to Rs 2.95 crore. interest expense grew by 2% to Rs 5.06 crore and depreciation grew by 14% to Rs 7.53 crore, thus contributing to the 25% decline in PAT to Rs 10.32 crore.
As per the CSO production data, the production for asbestos cement sheets with a weight of 1.36 grew by 13% to 2.16 lakh tonnes in April 2010 compared to the corresponding previous quarter. But since then has been decreasing. For the month of May and June it declined by 0.95% and 0.63% respectively to 2.13 lakh tonnes. For July it declined by 22% to 1.74 lakh tonnes, August by 14% to 1.59 lakh tonnes and September by 20% to 1.43 lakh tonnes. The production for the quarter ended September 2010 was down by 19% to 4.77 lakh tonnes. For the half-year ended September 2010, the production declined by 8% to 11.2 lakh tonnes.
The wholesale price index (WPI) of the asbestos cement corrugated sheets which has a weight of 0.11 in the WPI has been consistently increasing since March February 2009. The WPI of asbestos cement corrugated sheets rose from 109.1 in February 2009 to 125.5 in March 2010. and eased slightly there from to 125.4 in April 2010 and remained at that level through October 2010. On a y-o-y basis, WPI of asbestos cement corrugated sheets were 5.7% higher in the quarter ended September 2010. The industry has desisted from hiking product prices despite rise in asbestos fibre prices as well as cement prices, due to sluggish demand during the South West Monsoon season. Now, they are planning to hike product prices to protect the margins and to capitalize on sequential rise in demand during the construction boom that sets in from festive season through March.
Looking at the seasonal factors, traditionally the monsoon period sees a slowdown in construction activity. Excessive rainfall in many parts of the country has affected sales more than usual. The other factor was lack of availability of funds in the hands of people in rural markets. This was an after-effect of last year's poor monsoon. Rural customers had inadequate surplus funds for the construction of homes so they postponed plans for new construction. Availability of limited funds seemed to have benefited durables, which cost less to acquire as compared to home construction.
At Everest Industries, due to heavy rains at Lakeshwari (Bhagwanpur) from 11th September 2010 to 19th September 2010 there was substantial water logging in the Company's plant, which disrupted Company's Bhagwanpur plant operations from 11th September 2010 to 18th October 2010. The damages were fully covered by Insurance. The preliminary survey has already been conducted by the insurance agency. The Insurance claim has been filed with the insurance Company. Further the Company has informed that, the normalcy has been restored in the plant.
Hyderabad Industries Limited on 6th September 2010 has executed a lease deed for taking over of a fiber cement sheets manufacturing facility situated at Saidpura, Dera Bassi, Punjab, with a capacity of 45,000MT per annum. On acquisition, this unit shall cater to the needs of the growing fiber cement sheets market in the state of Punjab and its adjacent states and facilitate the company to increase its market share.
The management of Everest Industries feels that, good monsoon during this year will augur well for the ‘Building Products' industry in rest of the year and higher industrial growth rates of greater than 10% for the half year ended September 2010 should result into better performance by ‘Steel Buildings' business of the Company.
Outlook
As the monsoon season has come to an end in the country, the demand for cement products will shoot up as the construction and infrastructure activity abates. Typically the last quarter ending March and the first quarter ending June, in a fiscal year witness good demand. So, while the sector reports sluggish performance in the quarter ending September, it recovers in the third quarter ending December, and sizzles in the net two quarters.
Going ahead innovation in terms of various new application products introduction and product diversification will enable the players to expand the size of the cement product market which other wise is dominated by the asbestos cement sheets. The competition from alternative application products and unorganized market will continue to be a concern.
Amidst spike in costs, the industry deferred rise in asbestos cement sheet prices. But now that the South West Monsoons are over, the industry will sooner take a call on hiking product prices. This coupled with sequential rise in demand should help improve turnover, margins and profits of the sector on a sequential basis. With rural income set to increase on good rise in production and remunerative prices, the industry looks forward to healthy demand growth in the second half of the current fiscal.
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