Profit margins in other commodities are better than those in cement.

Profit margins in other commodities are better than those in cement.

Lower profit margins with rising expenses have made dealers wonder if continuing in cement dealing is really a good business option. While some are shutting shop, other are barely surviving.
Rajesh Parwal, Properitor, Bharat Traders
talks to ICR about issues that ail the sector.

Tell us about your dealership business.
We are in the business of dealing in cement since the last 17 years. We are the exclusive dealers for UltraTech Cement in Pune district. We stock products of different grades by the companies.

Why is cement selling business getting tough?
First is that the demand is less. Builders are not starting any new projects. Earlier they had three four phased projects; now they are barely able to finish the first phase. Most of them believe that the markets will pick up only after the 2014 elections. So they are waiting for the markets to pick up pace. Some cement manufacturers have started the DCS (Direct Consumer Service) initiative; here the consumers and the manufacturer are connected directly. Dealers are not mediators in all the deals. However, bypassing dealers is also affecting the business.

Have spiraling cement prices affected the business?
No, I don´t think so. Cement has hovered around Rs 290-310 in the last two-three years. We have seen growth even when prices were high. So, high price of cement alone may not be the reason behind the slowdown. However, with the rising cost of fuel, transport cost and the sluggishness of the market, the price seems high now.

Have dealers taken any steps to safeguard the business?
Yes, we had a dialogue with top cement manufacturers, requesting them to include us in their growth. We have suggested that the manufactures could sell directly to the consumer if the sales volume is more than 500 tonnes. For volumes below that, we must be included.

How is the market reacting to the sluggishness?
In Pune at least, 10 to 15 top dealers have closed down their shops and diversified to other areas. In cement, the margins are at the most upto 1 -2 per cent. Today that is not sufficient. Our expenses have increased with time. The cost of fuel, cost of labour for loading and unloading, cost of having employee for clerical work, etc, have all gone up but the profit margin has remained the same. Profit margins in other commodities are better than than in cement.

If you see the profit margins in other businesses, for example in food commodities, it is at least 8 per cent. Naturally then, it doesn`t make much of business sense to continue in cement dealing.

How is the RMC market impacting your business?
Earlier, 70 per cent of the cement consumed was sold in bags and the remaining 30 per cent was consumed in bulk by RMC sector. Now, 45 per cent goes to RMC in bulk while 55 per cent is sold in bags. Very soon we will see a complete switchover, the way we saw in Mumbai, where 70 per cent cement will be consumed by RMC and the remaining 30 per cent will come from dealers. Dealers cannot participate in this transaction as the RMC manufacturer gets in touch with the manufacturer directly.

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