Shree Cement sees narrowing margins despite drop in fuel cost

Shree Cement Ltd’s power and fuel cost per tonne has dropped, according to a report by Mint. However, the falling cost of fuel over the third quarter of 2017 has not had much of a positive impact on the company’s earnings.

The company’s cement sales volume increased seven per cent YoY to 4.8Mt over 3Q17, whilst its stand-alone net profit decreased by 27 per cent in the same period. Operating margins narrowed to 26.2 per cent in September from 32.7 per cent a year ago as the company's power division returns a less-than-satisfactory performance.

However, the fall in fuel cost is expected to be only short term, according to some analysts. Following the disruption to oil and gas refineries by hurricane Harvey in the US, global oil prices are rallying and expectations are that petcoke prices may follow suit. With many Indian cement makers relying on imported petcoke, this is forecast to put increasing pressures on profits, particularly for Shree Cement which has been reported to have a higher reliance on petcoke to meeting its fuel requirements. 

The lack of a positive impact resulting from the decreasing expense cost for the company could be due to a reliance on petcoke as a fuel source, after the fuel has recently been affected by a shortage.