High raw material costs to hit Q4 profits of cement companies

High raw material costs to hit Q4 profits of cement companies

Despite higher production and sales, profits of cement companies in the fourth quarter of 2010-11 will be under pressure due to the sharp spike in cost of raw materials such as coal, pet coke and gypsum, besides higher interest cost.

According to a cement company official, the series of price hikes implemented in February and March is unlikely to make up for the increase in operational cost as international coal prices alone on an average have gone up by 44 per cent year-on-year due to floods in Australia.

The sharp drop in cement dispatches in January has hampered the overall expectations in the fourth quarter, considered the peak season for the construction and infrastructure sector. The all-India cement dispatches in this fiscal till February has grown by about 5 per cent which was well below the industry expectation.

However, profits may improve when compared QoQ basis due to higher volume, prices and the positive impact of operating leverage. The improvement in profitability is expected to be much higher for players having presence in the northern region due to a significant hike in cement prices.

Cement companies operating in the southern region are expected to register a sharp increase in the realisation, as they had confronted a difficult situation of surplus capacity and dwindling demand during the fourth quarter of last year.

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Indian Cement Review