Muted growth has squeezed earnings of cement companies: Vinita Singhania, MD, JK Lakshmi Cement

Cement is essential in nature and it is one of the core industries which is playing a pivotal role in the growth and development of a nation. The Indian cement industry has transited itself into a more advanced one, aligning itself with the technological revolution, matching international standards. At present, the Indian cement industry is positioned second globally with total installed capacity of 330 MTPA.

However, muted growth in demand and cost escalations have squeezed the earnings of cement companies in the last quarter of FY13 despite it being a seasonally strong quarter.

In the year ended 31 March 2013 the Indian economy grew at 5 per cent, the slowest in a decade, according to the central statistics office.

The core reason for its downturn is the depressed economic growth, which has led to a disparity in the demand and supply dynamics. The cement industry is facing overcapacity, which has become way too high for the industry to handle. Also the GDP deceleration has caught house builders who are feeling the pain of inflation and poor visibility of income growth which is holding them back, adding to the trough in the cement industry.

Another challenge poised in cement production is the raw material availability and alarmingly high input costs of basic materials such as gypsum, fly ash and slag which have ascended on a year-on-year basis. The increase in diesel prices and railway freight has raised the logistics costs by over 22 per cent, which is borne by the cement companies.

The only respite to producers is the fall in price of coal, which will be partially offset by depreciation of the rupee and higher power tariffs, however coal availability is still an area of grave concern. The tax policy also needs amendments to ease the pressure faced by cement producers.

The industry is also facing foreign intervention posing acquisition threats.

Consolidation in the industry is a good step for the long term as it will enhance competitiveness, efficiency and margins, since it may also give them much of the untapped market and pricing power due to their size factor.

Vinita Singhania, Managing Director, JK Lakshmi Cement
(As told to Business Today's Sarika Malhotra)