Grasim foresees 5% dip in its margins

Rules out price increase in cement

Grasim Industries, part of the Aditya Birla group, has said that inability to raise cement prices in a slowing down economy will take a toll of 5 per cent in the its profit margins.
 
Grasim is country’s fourth largest cement maker after ACC, Ultratech and Ambuja Cements, with a capacity of around 16 million tonnes.
 
D D Rathi, whole time director and chief financial officer of Grasim Industries, said , “There could be a dip of 5 per cent in our margins this year.” There is pressure on margins as input costs have scaled up, he said.
 
“With majority of the fresh capacities being added to the industry in the second half of the current financial year, the capacity utilisation for the industry will drop to 90 per cent in FY09,” added Rathi.
 
In FY08, the domestic cement industry’s capacity utilisation stood at around 94 per cent. “In FY10, we foresee that the utilisation will drop further down to 85 per cent,” he said.
 
The Rs 85,000 crore cement industry is adding 35 million tonnes in FY09. “We estimate that in FY10, similar quantity of capacities will be added,” said Rathi.
 
The Birla firm said that there will be restrain on increasing cement prices as the estimated growth of 9-10 per cent is not there in FY09.
 
“Demand growth is less than what we had estimated, real estate is looking down, spending on infrastructure projects is not that what we estimated,” he said. However, regarding FY10, Grasim looks comfortable.
 
 
“In FY09 there will be a growth of 7-8 per cent, but in next financial year there will be some pick up as growth story is intact in India. We are relying on volume growth and not on the prices,” said Rathi.
 
The northern, western and eastern markets have seen dampening effect on cement prices. However, south has, so far, been secluded as the cement prices still rule firm.
 
The 203 million tonnes domestic cement industry is adding close to 80 million tonnes in the next two years.