Cement cos rake in bumper profits

Cement cos rake in bumper profits
ENS ECONOMIC BUREAU

MUMBAI, JAN 24: While the `cement cartel' is holding the customers to ransom by hiking prices and creating artificial shortages, companies belonging to this cartel are now coming out with bumper profits. Even as cement users who were reeling under the price hike and shortage started boycotting fresh purchases, Grasim Industries, India's third-largest cement firm, on Wednesday reported a 78 per cent surge in third-quarter net profit as cement margins rose.

Grasim said it earned Rs 90.5 crore (or Rs 9.87 per share) in October-December versus Rs 50.93 crore (or Rs 5.55 per share) in the year-ago quarter.

On Tuesday, Associated Cement Companies (ACC) - the largest cement company - reported a net profit of Rs 14.64 crore for the quarter ended December 31, 2000 as against a loss of Rs 19.79 crore for the same quarter of last year. The total income for the said period has increased by 11.6 per cent to Rs 760.59 crore as against Rs 681.79 crore in the same period last year. The company has attributed this to reduction in costs due to their various initiatives it has undertaken.

Grasim sales rose 12 per cent to Rs 1,189 crore as against Rs 1,061.81 crore in same period of last year, the company said. "It seems cement companies are making bumper profits at the cost of users," said a builder. Other cement makers like Larsen & Toubro, Gujarat Ambuja Cements and India Cement are also expected to come out with bumper profits in the third quarter.

The construction industry had recently a decision to boycott cement purchases on an all India basis from two cement majors - Gujarat Ambuja and Grasim. Interestingly, other cement manufacturers, including ACC and Larsen & Toubro (L&T) were spared. The decision was taken at a morcha organised by the Builders Association of India (BAI) and Maharashtra Chamber of Housing Industry (MHCI) on January 19 in Mumbai.

According to MHCI president Rajni Ajmera, "we want to break the cartelisation and hence corner any two major cement manufacturers. Our strategy is purely to break the cartelisation by the cement manufacturers."Grasim and Gujarat Ambuja account for over 25 per cent of the cement consumption in Mumbai, which is the largest market in India.

Cement prices in Mumbai are currently around the Rs 190-195 mark in the retail market. Cement prices went up from Rs 140 level in August 2000 to Rs 190 level in December 2000. "This will also be reflected in the topline growth of other cement companies like Gujarat Ambuja Cement, Grasim Industries and L&T. Cement pivotals have gone up on the bourses on expectations of strong third quarter results," said an analyst.

With cement companies going all out to make maximum profits out of the situation, the government has also entered the picture. State Chief Minister Vilasrao Deshmukh on Tuesday warned of an intervention by the State Government if the cement industry fails to reduce the hike in prices of cement. "The State Government will use its powers and make arrangements to distribute cement at reasonable rates if the cement industry does not roll back the hike," Deshmukh told the cement manufacturers at a meeting called by him on Monday evening.

Deshmukh said he was not convinced with the explanation of the cement manufacturers justifying the price hike. Besides the complaints of the builders and developers in the state, the Government itself is facing trouble due to cartelisation by cement manufacturers. The Maharashtra Government purchases about 10 lakh tonne cements every year. Construction of roads, irrigation projects and other Government constructions will be hit by the price hike, Deshmukh pointed out.