Concrete

A Balancing Act

Published

1 year ago

June 12, 2023

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As the Indian cement sector grapples with the paradox of turnover growth and decreased profitability, ICR explores the reason behind this phenomenon.

As per an estimate by CareEdge Research, India’s cement production ranged between 380-390 million tonnes in FY23, docking a growth rate of 8-9 per cent y-o-y. This growth in production is spurred by increased demand and this will continue in FY24, too, thanks to the upcoming general elections. However, that does not ensure higher profit margins. As is seen in the economic analysis, although cement production and consumption grew by 11 per cent in FY23 in the period from April to November on a year-on-year (y-o-y) basis, the EBITDA margins of cement players declined by almost 10 per cent y-o-y in H1FY23. Price hikes in per bag of cement failed to tackle inflation, resulting in cement companies grappling with restricted profit margins. This unprecedented anomaly has got trade pundits to reconsider the dynamics of the cement industry.
The cement players were not able to pass the input cost escalation entirely, which impacted the EBITDA margins in H1FY23. The power and fuel costs were expected to remain elevated in the near term due to concerns about global supply while the price hikes may not be sufficient to cover the elevated costs, thereby adversely impacting margins. The profit margin of the cement companies were expected to decline by 400-500 bps in FY23.
Cement is a cyclical industry, which means that fluctuations in the economy tend to adversely affect profitability. This has resulted in cement players facing the antithesis of high turnover and low profitability. This can be attributed to some of the major causes such as input costs and logistics cost that eat into the revenues. Let’s backtrack a little to the last quarter of the previous financial year to look at how trends have progressed in order to get a clear perspective of the current situation.

Taking Stock
As per a report by CareEdge Ratings, the operating profit margins of cement contracted by 320-380 basis points to 16.3-16.8 per cent in FY23 as input cost pressures remained constant. The surge in power and fuel costs as well as the escalation of limestone prices affected the cement margins considerably. But this trend changed as markets have witnessed a stabilisation of coal prices. A Motilal Oswal Financial Services report states, “As per our calculations, the average spread for cement companies should improve by ~INR300/t based on spot coal/petcoke prices and most of the benefits will start reflecting in Jun’23, as per companies’ commentaries, as they are carrying high-cost coal inventory.
“Current spot prices of US/Saudi Arabia petcoke and South African coal are at similar levels of 1QFY22 average. Though domestic pet coke prices seem to be higher than imported pet coke prices, we expect a reduction in domestic petcoke prices in coming weeks. Recently, IOCL reduced the petcoke price by 4-9 per cent on 23rd May’23 (total reduction of 11-17 per cent in May’23),” stated the report.
The favourable trend of fuel and raw material prices that the cement sector has witnessed is yet to reflect on the profit margins. However, input costs are not the only parameters affecting profitability of cement.

Demand Surge
One of the major highlights of the pre-election period in India is speedy mobilisation of infrastructure projects across the country. The Central Government is focussed on completion of major projects including the affordable housing schemes. This has called for a boost in demand for cement. So far expert analyses have predicted that Indian cement companies are geared up to meet the as cement supply is marginally surpassing projected demand. However, cement demand has been surging since FY23 itself as India’s cement production and consumption each grew 11 per cent year-on-year (YoY), according to a report by CareEdge.
In this tug-of-war between cost inputs and rise in demand, the former had an upper hand, resulting in lower margins for the cement companies. Although the demand is surging, it is not enough to battle the high input costs, especially of fuel, thereby being detrimental to the profit margins of cement companies. So, where does cement price figure in all of this?

Pay the price
It is a common practise for cement makers to hike prices for end-users during certain peak periods across the year. The pricing vastly differs in different states as cement is basically a sectoral industry. Depending on the location of the cement plants and the logistics expense, price per cement bag differs from state to state. Additionally, on a sectoral
level, pan-India brands have to compete with local ones and pricing becomes an important distinguishing factor. From an end-user’s perspective, cement as a product largely remains the same and there is no brand loyalty, therefore, price becomes an all-important factor.
While cement companies tried increasing price per bag in February-March 2023, these hikes did not translate into actual revenue for a number of reasons. Most of the hikes metamorphosed into discounts, price cuts or incentives, given the tough competition. So, when you look at the bigger picture of cement pricing across India, the last two quarters of FY23 saw a flat graph, with occasional negative dipping.
This meant that cement companies were unable to pass on the input costs to the consumer and had to internalise the same, resulting in negatively impacted bottom lines.
To summarise, the Indian cement sector is witnessing a rise in turnover due to robust demand fuelled by infrastructure projects and real estate development. However, profitability is being hampered by escalating input costs, rising costs of logistics and last mile connectivity, the inability to pass on the entire burden to consumers and intense market competition. However, the outlook remains positive as cement companies are already operating on the background of a sturdy turnover and the demand only going to increase going forward. Margin corrections will take place eventually as other factors fall in line, making FY24 a profitable year for cement. This forecast has kept the sector’s outlook positive, with sustained demand growth anticipated in the coming months, which could support improved profitability in the long run.

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JK Cement marks 140 years of innovation and leadership

JK is one of India’s leading manufacturers of Grey Cement in India

Published

3 days ago

September 17, 2024

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JK Cement Ltd. a leading building material company, one of India’s leading manufacturers of Grey Cement in India and one of the largest White Cement manufacturers in the world, celebrated 140 years of JK Organisation’s remarkable legacy at a grand event in the capital. The event honoured the group’s rich history, its significant contributions to multiple sectors of the Indian economy, and the unwavering dedication of its employees and partners.

The celebration gathered dignitaries, industry leaders, employees, and key stakeholders to reflect on JK Organisation’s journey from its inception to its present status as a global leader. Lieutenant Governor of New Delhi, VK Saxena, who himself started his career at JK Cement, along with Rajeev Shukla, Member of Rajya Sabha, graced the occasion. Key leaders of the JK Organisation, including Dr. Nidhipati Singhania, Vice President, JK Organisation, Dr. Raghavpat Singhania, Managing Director, JK Cement, and Madhavkrishna Singhania, Joint MD and CEO, JK Cement, were present to mark this significant milestone.

CEO’s from various known business houses both Indian and Multinational companies across sectors graced the occasion.

Reflecting on the organization’s journey, Dr. Nidhipati Singhania, Vice President, JK Organisation, said, “As we celebrate 140 years of JK Organisation, we are filled with immense pride and gratitude for our legacy, which is rooted in values of innovation, quality, and service to the nation. Our journey has been as much about business success as about driving positive change in the communities and industries we serve. The milestones we have achieved reflect our continuous efforts in advancing India’s infrastructure and industrial landscape.”

One of the key highlights of the evening was the recognising the long-serving employees and partners who have dedicated decades to JKCement. Their enduring loyalty underscores JK Organisation’s foundational values of trust and collaboration, which have been pivotal to the organisation’s success.

Addressing the guests at the event, Dr. Raghavpat Singhania, Managing Director, JK Cement, said, “This year along with the 140 years milestone, also marks two significant milestones for us: 50 years of grey cement business and 40 years of white cement business, affirming our leadership in the industry. Our recent expansion into coal mining underscores our commitment to vertical integration and sustainable resource management. We are dedicated to not only adapting to the evolving landscape but also driving positive change and creating lasting value for all our stakeholders and the nation.”

Emphasising the company’s commitment to innovation and progress, Madhavkrishna Singhania, Joint MD and CEO, JK Cement, said, “Our journey has been marked by resilience, adaptability, and a constant drive to exceed expectations. We’re committed to leveraging cutting-edge technology and sustainable practices to not only maintain our market leadership but also to contribute significantly to India’s progress. The trust of our stakeholders and the dedication of our team members have been instrumental in our success, and they will continue to be the pillars of our future endeavors.”

The event celebrated JK Organisation’s visionary outlook, showcasing its commitment to sustainable growth, technological innovation, and its influential role in driving India’s economic advancement.

VK Saxena, Lieutenant Governor, New Delhi, who was invited as the Chief Guest said “It’s an honour for me to be part of this landmark celebration for a company where I started my career as an Assistant Officer in Gotan, Rajasthan and worked for 11 years in different capacities with its White Cement plant. This exposure gave me insights of a corporate working, faster decision making and team work, which has helped me throughout my various stints thereafter. I wish all the best to JK Cement for all their Future endeavors in Nation Building”

Concrete

Steel Ministry Proposes Rs.23.52 Lakh Crore for Decarbonisation

Steel Ministry unveils massive decarbonisation plan.

Published

4 days ago

September 16, 2024

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Decarbonisation Proposal:
The Steel Ministry has outlined a substantial Rs.23.52 lakh crore proposal aimed at decarbonising the steel industry. This initiative is part of the broader sustainability and environmental goals set by the Indian government.

Objective and Goals:
The primary objective of the proposal is to reduce carbon emissions significantly and enhance the environmental performance of the steel sector. This aligns with India’s commitment to climate action and green growth.

Investment Focus:
The proposal will channel funds into advanced technologies, energy-efficient processes, and renewable energy sources. Key areas of investment include electrification, hydrogen-based steelmaking, and carbon capture technologies.

Expected Benefits:
Implementing this plan is expected to lead to major reductions in carbon emissions, improve air quality, and contribute to sustainable development. It will also bolster India’s position as a global leader in green steel production.

Industry Impact:
The steel industry, being a major emitter of greenhouse gases, will undergo a transformation. This shift will require industry-wide adaptation and could influence global steel market trends.

Government Support:
The Indian government is committed to providing policy support, incentives, and regulatory frameworks to facilitate this transition. This includes subsidies for green technologies and research and development funding.

Timeline and Phases:
The implementation will be carried out in phases over the coming years. Short-term goals will focus on immediate emission reductions, while long-term goals will target more comprehensive technological advancements.

Stakeholder Involvement:
Collaboration with industry stakeholders, technology providers, and research institutions will be crucial. Engagement with local communities and environmental groups will also play a role in ensuring the success of the proposal.

Challenges:
The initiative may face challenges such as high costs, technological barriers, and regulatory hurdles. Addressing these challenges will be essential for the successful execution of the decarbonisation plan.

Future Outlook:
The proposal positions India as a key player in the global movement towards sustainable steel production. It sets a precedent for other sectors to follow and supports the country’s broader climate goals.

Conclusion:
The Steel Ministry’s proposal for a Rs.23.52 lakh crore decarbonisation plan represents a significant step towards reducing carbon emissions in the steel industry. With substantial investment in green technologies and strong government support, this initiative aims to drive sustainable growth and position India as a leader in environmental stewardship.

Concrete

New home prices in China fall 5.3% in August 2024

New home prices were down 5.3% from a year earlier.

Published

4 days ago

September 16, 2024

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Official data revealed that China’s new home prices had fallen at their fastest rate in over nine years in August, as supportive measures failed to induce a significant recovery in the property sector. The data showed that new home prices were down 5.3% compared to the previous year, marking the sharpest decline since May 2015, compared to a 4.9% drop in July, based on calculations by Reuters from National Bureau of Statistics (NBS) data. Monthly figures indicated that new home prices had fallen for the fourteenth consecutive month, decreasing by 0.7%, which was the same drop recorded in July.

The property market in China continues to struggle with deeply indebted developers, incomplete apartments, and declining buyer confidence, which is putting a strain on the financial system and threatening the 5% economic growth target for the year. A Reuters poll had forecast that home prices in China would decline by 8.5% in 2024 and by 3.9% in 2025 as the sector struggles to stabilise.

Zhang Dawei, chief analyst at property agency Centaline, mentioned that the property market is still gradually bottoming out, with home buyers’ demand, income, and confidence expected to take some time to recover. He noted that the market was anticipating a stronger policy response. According to the official data released on Saturday, property investment had fallen by 10.2% and home sales had dropped by 18.0% year-on-year in the first eight months of the year.

Chinese policymakers have stepped up efforts to support the property sector, including reducing mortgage rates and lowering home buying costs. These measures have partially revitalised demand in major cities, while smaller cities, which have fewer home purchase restrictions and high levels of unsold inventory, are particularly vulnerable. This situation underscores the difficulties faced by authorities in balancing demand and supply across different regions.

In a research note on Friday, Nomura indicated that with the growth slowdown worsening under new headwinds in the second half of the year, Beijing might eventually need to step in as the “builder of last resort” by directly providing funding to delayed residential projects that have already been pre-sold. According to Bloomberg News, China may cut interest rates on over $5 trillion in outstanding mortgages as early as this month.

To support these mortgage rate cuts, economists at ANZ suggested that a reduction in the five-year Loan Prime Rate was likely in September, along with a 20 basis point cut to the medium-term lending facility (MLF) and a 50 basis point cut to the reserve requirement ratio (RRR).