In the past week, some cement producers in India, the world's second largest cement producing country, have released their third quarter financial reports. This article attempts to analyze the financial reports of these cement companies from an economic perspective.
Net profit of Ambuja Cement, a subsidiary of Lahao Group, fell 36% year-on-year to $23.6 million in the first three quarters, while revenue fell 4% year-on-year to $324 million. ACC, another Indian subsidiary of Lahao Group, saw a 40% year-on-year decline in net profit to $17.5 million in the first three quarters. This is not good news for the world's largest cement group.
Other earnings announcements included JK Cement Group, which reported a 58% drop in net profit to $2.1 million in the first three quarters from a year earlier, and Century Textiles Group, which owns Century Cement, which reported a loss in net profit despite an increase in revenue.
Not all companies have seen a serious decline in performance. UltraTech Cement Group reported a 3.9% year-on-year decline in net profit to $59.7 million, a much smaller decline than previous companies. The result was better than what Angel BroKing's senior analysts had predicted.
So far, the only company that has nothing to do with the decline in profits and losses is India Cement Company (ICL), whose net profit has increased nearly five times, from $1.14 million to $6.26 million. The company announced that the main reason for the performance improvement was that the improvement of operating parameters led to a sharp drop in costs, and the company's operating profit increased from $27.9 million to $35.4 million. The company's capacity utilization rate increased year on year, and the current capacity utilization rate is 60%.
Does ICL provide a business model for other manufacturers? In response to the company's performance, N Srinivasan, the company's managing director and deputy chairman of the board of directors, said: "We have experienced two years of difficult times, and we have achieved a turnaround by cutting costs and maintaining reasonable cement prices .". Looking forward to the future, our development will enter a better era. In fact, ICL's maintenance of a reasonable cement price is subject to a separate review during a period of low cement prices.
From the results of enterprise announcements up to now, we can see that the larger the scale of cement enterprises, the stronger the resistance to environmental risks in industries with excess capacity. In different markets in India, economies of scale and risk diversification are more likely to be seen in large companies, such as UltraTech. On the contrary, small enterprises are more likely to be "stuck" in a weaker regional market, and can only move forward nervously, or make themselves the strategic target of mergers and acquisitions of large enterprises.
We are still waiting for the performance reports of other cement companies in the Indian market, but we do not expect the performance of other companies to be much different from that of the previous ones. There are two key factors that determine whether the profits of Indian cement enterprises will continue to decline: First, the large-scale infrastructure construction projects promised by the Modi government of India can stimulate the demand for cement. In the past, many similar promises have been made in the cement industry, but people in the industry tend to be skeptical of such promises. Second, companies can only make low profits at present, albeit on the basis of low coal prices, so the increase in costs, even if only a small increase, is a huge change for some small enterprises.
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