Cement makers in AP, TS in losses

Demand declines from 2.5 million tonne a month to 1.2-1.3 million tonne at present

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Cement manufacturing units in the southern states of Andhra Pradesh (AP) and Telangana (TS), unlike their counterparts in the north, are stated to be in severe strain due to a steep decline in demand from the last three years.

All developmental projects in the two states have virtually come to a standstill due to the prolonged agitation for a separate statehood followed by bifurcation of AP leading to a decline in demand for cement from 2.5 million tonne a month to 1.2-1.3 million tonne at present.

Cement consumption in irrigation and weaker sections housing sectors, which used to be 350,000 tonne and 300,000 tonne a month respectively, has now come down to zero due to policy paralysis, according to Deccan Cements chairman, MB Raju, and India Cements president- marketing, Rakesh Singh.

They told Business Standard that most of the cement units in the state had incurred loss during the first quarter of the current financial year. For instance, KCP incurred a loss Rs 7.54 crore, Sagar Cements’ loss stood at Rs 8.6 crore, NCL Industries reported a loss of Rs 19.24 crore, Deccan Cements posted a loss of Rs 4.66 crore and India Cements incurred a loss Rs 2.96 crore for the quarter ended June 2014.

“We have eight units in the south and one unit in the north. While the unit based in Rajasthan (north) reported a profit of Rs 10.5 crore, all the eight units in the south (four each in AP and Tamil Nadu) have incurred loss during the quarter,” Singh said.

According to the duo, though the demand is expected to pick up from January, next year, it will take another 2-3 years for it to reach peak level. “We are in dire straits. Two cement plants, Panyam and Bheema, have already been closed due to unviable business, while two more units, Anjani and Jayajothi, have been sold out,” they said.

There are a total of 47 cement plants in AP and TS and two more units belonging to Dalmia and Orient are coming up. The capacity addition in the last three years had been 35 million tonne.

“We are currently sitting on a 150-million tonne capacity in the south, including 86 million tonne in AP and TS. As the demand has declined, our capacity utilisation has also declined to 55 per cent. In contrast, cement units in the north are utilising 85 per cent capacity,” the two cement makers said.

The cement manufacturers have now represented to AP and TS governments to reduce the VAT rate of 14.5 per cent and provide other reliefs to ensure the survival of the cement sector.

On the other hand, the Builders Associations of AP and TS are accusing cement manufacturers of abnormally hiking the cement prices to over Rs 300 a bag of 50 kg. They have also stopped purchase of cement for sometime in protest against the hike in price.

Raju and Singh, however, said the cost of production itself had gone up to Rs 310 a bag on account of a rise in cost of power, coal, transportation and taxation.

“Ironically, while we are making losses, the people (builders) to whom we are supplying cement are making profits,” they said.