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Asbestos Cement Sheet (ACS) producers recorded three years of consistent rise in turnover and profits between FY 2007-08 and FY 2009-10. But the spike in costs and inability to pass on the same amidst sluggish demand and intensified competition meant that their profits fell substantially in the quarter and year ended March 2011. Players have attempted to increase ACS prices, and have been partially successful in the past few months. But still, for the foreseeable future, they donot expect the margins to go back to FY 2009-10 levels.
Asbestos fibre, cement and fly ash are the key inputs for asbestos corrugated sheets. Cement prices have hardened at a faster pace than the improvement in the asbestos cement sheets. The All India average cement prices have surged from Rs 226 per 50 kg bag in September 2010 to Rs 262 by February 2011.
India imports almost the entire quantity of its requirement of chrysotile asbestos fibres. We have taken the operations of Ramco Industries, to identify the trend in cost of asbestos fibres. Based on the annual purchase cost of asbestos fibre cost, in the total annual sales of asbestos fibre sheets. This gives an approximate trend, which evidences that the share of asbestos fibre cost in the total sales value of asbestos fibre sheets have been increasing from about 29% in FY 2004-05 to about 43% in FY 2009-10.
We have found that the prices of both asbestos fibre has been hardening, while cement prices surged in the second half of FY 2010-11, both on a sequential and y-o-y basis. Amidst sluggish demand due to extended monsoons, players decided to absorb the increase in costs till December 2010. Though they attempted to increase the prices in January 2011 and February 2011, they had to bring down the prices steeper in March 2011, due to sluggishness in demand.
Everest Industries is planning to set up 1 lakh tonne fibre cement product plant at Orissa at an outlay of Rs 50 crore. Ramco Industries has commissioned 1.2-lakh tonne fibre cement product unit at Industrial Area, Bihiya, Bhojpur District in Bihar in May 2011 at an outlay of Rs 35 crore. For this purpose, it has taken about 20 acres of land on lease for 90 years from Bihar Industrial Area Development Authority, Patna.
Visaka Industries has expanded its Pune unit by 30000 tonne to 1.2 lakh tonne. Similarly, it is also planning to set up 2.16 lakh tonne asbestos cement sheet unit at Orissa. The Orissa plant is likely to be commissioned in June 2011. In September 2010, Hyderabad Industries took 45000 tonne fibre cement sheet manufacturing facility at Saidpura, Dora Bassi, Punjab on lease.
The organized asbestos cement sheet sector recorded over 7% increase in capacity to about 44 lakh tonne by March 2011 from estimated 41 lakh tonne in March 2010. This is in addition to about 5 lakh tonne of capacity with the unorganized sector. While the industry is facing through squeeze in margins, it is confident of strong growth in demand in future.
The improvement in the rural income augurs well for the ACS industry. Cement prices remain elevated, but can show signs of weakness in the ensuing South West Monsoons 2011 due to estimated sequential fall in demand, and accelerated capacity addition lead fall in capacity utilization. So, there could be some savings on input cost front from the second quarter of the current fiscal. But during this period, the demand for ACS also eases, as farmers will be busy in agricultural activity rather than changing the roof of their houses. But still, the players are hopeful of better demand growth, and improvement in profitability in the current fiscal, though the return of margins to FY 2009-10 levels may not happen any time sooner.
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