Building boom a boon for cement firms

New Delhi, May 29 :

The construction boom, backed by a sharp rise in cement prices, has helped cement companies register hefty net profits of up to 1,550 per cent in the last quarter (January-March) of 2005-06.

“The housing and construction boom, resulting in a smart rise in realisation at the retail level helped cement companies register a handsome average growth of 95 per cent in net profit in the last quarter of 2005-06,” a study by the Assocham Eco Pulse revealed. “Backed by a strong demand, particularly in the northern and the western region, major cement firms witnessed 32 per cent hike in their sales volume. Further, thanks to the prices going up on the back of a demand surge, the cement majors saw an impressive growth in their bottomline,” the Associated Chambers of Commerce and Industry of India (Assocham) study stated.

Some individual companies like Ultra Tech Cements posted a remarkable growth rate of 1,550 per cent in its net profit, which zoomed to Rs 815 million Indian Currency (IC) ($17.7 million) in the last quarter of 2005-06 from Rs 49.4 million IC in the comparable period of the previous year, the study highlighted.

Others were not lagging far behind either. ACC Ltd posted a net profit of Rs 2.31 billion IC, up by 27 per cent in comparison to the fourth quarter of last year. Sanghi Cement recorded a growth rate of 455 per cent in net profit, followed by Mangalam Cements with a growth rate of 173 per cent in the bottomline. In the last quarter of fiscal 2005-06, Gujarat Ambuja Cement’s net profit stood at Rs 2.99 billion IC against Rs 1.43 billion IC during the corresponding quarter in the previous year.

“Housing boom and an increased focus on infrastructure development like national highways and state highways have led to increased demand for cement resulting in hardening of prices,” said Assocham President Anil K Agarwal. “While the prices may soften during the ensuing monsoon season, the demand-supply mismatch is likely to continue in the current fiscal as well.”

Agarwal disagreed with the government directive to roll back the retail prices. Stating that prices are a function of market forces, Agarwal said, “Government need not intervene every time there is a price rise. After all the cement industry also had to face a glut situation in the past.” While retail prices are on the rise, the industry study revealed that as per the data published by companies in their quarterly and annual financial results, it was not necessarily backed by a hike in the prices of raw material.