Wage bills, power costs, shake up cement manufacturers

Operating profit margins (OPM) of cement units in India have taken a hit with rising energy costs and wage bills. Increase in the sales volumes and realisations during the July-September quarter of fiscal 2005-06, though, has provided some cushion, said Assocham Eco Pulse (AEP) Sectoral analysis.

Raw material cost increase by over 8 % and wage bill hike by 13.65 % played the spoilsport even as the firms recorded rising demand, showed the analysis of top 10 cement firms. The firms which saw pressure on their operating profits included ACC, Grasim Industries and Gujarat Ambuja Cement.

Amongst the cement pack, Shree Cement registered the highest rise of 32.74% in staff cost to Rs.7.5 crore from Rs.5.65 crore in the corresponding period previous year. ACC followed with a growth of 28.96% to Rs.81.54 crore from Rs.63.23 crore and Gujarat Ambuja Cement reported an increase of 21.26% to Rs.28.52 crore from Rs.23.52 crore.

The other companies which showed a rise in their wage bill include OCL India (17.33 per cent), Prism Cement (15.64 per cent), Grasim Industries (14.18 per cent), Madras Cements (10.43 per cent) and Birla Corporation (1.03 per cent).

Raw material costs saw the firms posting an average growth of 8.06%. Prism Cement was the worst hit with the company’s input costs zooming by 68.37% Rs.52.11 crore from Rs.30.95 crore. OCL India saw a rise of 31.23% to Rs.73.45 crore from Rs.55.97 crore and Madras Cements raw material cost went up by 28.86% to Rs.108.4 crore from Rs.84.12 crore. Others paying higher costs for raw material included India Cements (15.92%), Gujarat Ambuja Cement (12.27%), ACC (5.5%) and Grasim Industries (4.44%).

The quarter saw an escalation in the energy prices, especially naphtha, which in turn increased the power costs. The growth in the cost for coal as well as petroleum products in turn added to the freight rates. Besides this, change in railway freight classification and an increase in royalty on limestone contributed to the rise in input costs. The situation was made worse by the floods in several parts of the country.