Lull In Cement Demand Takes Toll On Shree Cement Profits

Most of the cement manufacturing companies witnessed a fall in profit margins in the financial year 1996-97 owing to slow down in demand growth, higher supplies from new commissioned capacities and increase in cost.

Shree Cement of Calcutta-based PD-BG Bangur group, which announced its results for the 15-months ending June 30, 1997, at the 18th annual general meeting of the company, was no exception.

On an annualised basis, the sales of the company declined by five per cent in 1996-97. While operative profit declined by nearly 19 per cent and in spite of a drop in interest burden, profit before tax of the company dipped by over 26 per cent.

 

But profit after tax declined 12 per cent due to over an 85 per cent drop in tax provision. Hence, the company registered lower profitability ratios in 1996-97.In view of the discouraging performance, the board of directors of the company has revised its earlier decision to pay dividend for the year. It had earlier informed the stock exchanges that a 10 per cent dividend had recommended by the board.

According to H M Bangur, the joint managing director of the company, the board had reconsidered the dividend plan due to certain difficulties.

The board has also changed its decision to pay Rs 86 lakh as commission to its two whole-time directors and other non-executive directors.

In the previous year, the two whole-time directors on the company's board had received a commission income of Rs 1.88 crore. Due to difficult market conditions and delay in the start-up of the new Rs 350-crore 1.26-million tonne plant located near Ajmer in Rajasthan, the board had curtailed the commission payout to the two whole-time directors and non-executive directors.

The new plant which has recently started functioning, had run into trouble during commissioning stage as the electro-static precipitator exploded. Though there were no human casualities, the work got stalled for about two months.

According to Bangur, the market deteriorated beyond imagination and the fundamentals were against the cement industry as a whole.

Further, funds were hard to come in ever changing financial scenario of the country. So, the company has decided to retain the entire earnings of the year. It is estimated that Sri Cement would stand to gain Rs 4 crore during the 15-month period ended June 1997.

The expansion in capacity by 12.4 lack tonne at the new unit in Reawar has made the company a leading cement manufacturer in north India.

The additional output is expected to help the company in lowering the overall cost of production making it increasingly competitive. During the period October-December 1997, the demand for cement suddenly grew by over 15 per cent may be due to closure of large number of mini cement plants.

The surge in demand has come as a major relief to big cement producers. The company expects to improve its performance this year though it may not be very significant.