Lower sales realisation hit margins of cement makers in Q2

Major cement manufacturers reported a decline in margins in the September quarter, mainly on account of lower prices, leading to lower sales realisation.

Barring three leading cement producers -- UltraTech Cement, Ambuja Cement, and Dalmia Bharat -- other smaller players, including Nuvoco Vistas Corp, JK Cement, Birla Corporation, and Heidelberg Cement, reported a decline in topline and sales volume in the second quarter of the current fiscal year.

Industry observers said the increase in sales volume of UltraTech and Ambuja Cements is mainly due to the several acquisitions by both companies that consolidated their position further in the industry.

The industry also faced challenges such as extended monsoon, floods, and a slow pickup in government demand, cumulatively leading towards a weak demand. Power, fuel, and other costs, however, largely remained stable for the industry.

The all-India average cement price was around Rs 348 per 50 kg bag in June 2024. It decreased 11 per cent year-on-year to Rs 330 per bag in September, though it increased 2 per cent on a month-on-month basis.

In the first half of FY25, cement prices declined 10 per cent year-on-year to Rs 330 per bag. A year earlier, the average prices stood at Rs 365 per bag and Rs 375 per bag in FY23, according to an Icra report.

Leading cement maker Ultratech reported a 68 per cent capacity utilisation with a 3 per cent growth in volume terms. However, its sales realisation for grey cement declined 8.4 per cent year-on-year (YoY) and 2.9 per cent quarter-on-quarter (QoQ), in the July-September period.

Replying to a query on cement prices in the earnings call, UltraTech CFO Atul Daga said, "August to September, we saw improvement in prices and September to October also, the prices have been steady.

So we have seen an improvement from Rs 347 (in August) exit to about Rs 354 currently." Ambuja Cements, the country's second-largest cement maker, reported a growth of 9 per cent YoY in sales volume at 14.2 million tonnes (MT) in the September quarter.

However, its earnings before interest, taxes, depreciation, and amortisation (EBITDA) was 15 per cent lower at Rs 1,074 crore. However, the Adani Group firm had a higher margin in the September quarter on a YoY basis driven by higher capacity utilisation and reduction in the cost of production.

On a quarter-on-quarter basis, though, it had a "lower margin" than the June quarter "mainly due to industry-wise lower price realisation". Dalmia Bharat's volume grew 8.4 per cent YoY to 6.7 MT during the quarter.

However, revenues dropped 2 per cent to Rs 3,087 crore due to a sharp decline in cement prices, the management said in the earnings call. Its EBITDA declined 26.8 per cent to Rs 434 crore "on a YoY basis primarily due to softness in cement prices and higher fixed costs due to the shutdown".

"The cement prices declined during Q2 due to weak demand scenario, particularly in south and eastern markets. These markets saw a decline of 5-7 per cent QoQ and about 10-12 per cent on YoY basis," Dalmia Bharat's management said.

It further said the month-to-date October prices are on the same lines as the September quarter average. Birla Corporation's sales volume was down 5 per cent to 3.97 MT as cement demand was sluggish in the traditionally weak monsoon quarter and prices plummeted to record lows in all key markets.

"The company's EBITDA per tonne from cement sales for the September quarter was at Rs 461 compared to Rs 683 in the same period last year. The cement division's EBITDA margin at 9.8 per cent for the September quarter represents a contraction of around 300 basis points from a year ago," it said.

M P Birla Group firm's revenue from the cement business was down 13.88 per cent to Rs 1,874.68 crore. JK Cement's net sales realisation was 0.8 per cent higher on a QoQ basis to Rs 4,708 per tonne in the September quarter in comparison to Rs 4,669 per tonne in the June quarter of FY25, improved due to selective sales in high realisation areas.

Similarly Nuvoco Vistas Corp, the Nirma Group cement firm, said pan-India prices "remained under pressure and declined 4 per cent QoQ in Q2", during which its volume declined 5 per cent YoY.

HeidelbergCement India's revenue from operations was down 18.54 per cent to Rs 461.41 crore, driven by a 15 per cent decrease in volume and a decrease in price by 4 per cent.

Moreover "driven by decrease in volume and prices, the company's EBITDA per tonne decreased to Rs 380, a decrease of 36 per cent YoY," it said. The makers are expecting improvement with better sales realisation in the second half, helped by an increase in demand for housing and increased government spending on infra projects.