'Below expectations' was the headline message from Holcim's half-year results this week. Canada, Mexico and Morocco were all singled out as problem areas for Holcim but surely India represents the biggest headache for the debt-reducing multinational.
How badly its bottom line was hit by India in particular, Holcim declined to say. Overall its entire Asia Pacific region saw sales volumes of cement fall by 3.7% to 37.8Mt to 36.4Mt for the first six months of 2013. In 2012, India represented over half of the group's Asia Pacific installed cement production capacity. This suggests that the actual drop in sales in India was probably at least 6%, more if the other countries in the territory did better than in 2012. Overall profits for the Asia Pacific region fell by 14% to US$650m. What we do know is that Holcim announced major restructuring to its businesses in India in late July 2013 to cut costs.
The other major cement producers in India have fared similarly badly. UltraTech's first quarter profit, for the period ending on 30 June 2013, fell by 13.5% to US$111m. Its revenue fell by 2% to US$820m. Jaiprakash Associates also reported a 2% dip in its cement sector revenue to US$247m in the quarter ending on 30 June 2013. Profits fell by 24% to US$27m. India Cements' sales revenue rose by 3% to US$196m. Yet its operating profit fell too, by 41% to US$19.8m.
Both Holcim and India Cements blamed falling cement prices in the south of India. India Cements directly mentioned overcapacity. The only explanation UltraTech offered for its poor performance was rising input and logistics costs.
Problems in India are not unexpected. Overcapacity has loomed over the Indian cement industry for some time as the race for growth far overtook the increase in demand. In the wider economy, India hit its lowest gross domestic product increase in a decade, 'just 5%', for the financial year ending on 31 March 2013. Meanwhile the Indian Rupee fell to a record low of 61 against the US Dollar in late June 2013. Not good news at all for any cement producers looking to offset energy or raw materials costs from abroad.
As predicted in our overview of the Indian cement industry back in February 2013, the smaller cement producers are now likely to get picked off by the larger firms as capacity utilisation falls and fuel costs rise. It is interesting to compare this free-market led cement industry consolidation to the state-directed one happening in China.
The Indian media are certainly wise to this with reports and speculation on endless takeover rumours. One example of this is the Irish building materials conglomerate Cement Roadstone Holdings's (CRH) decision to purchase Sree Jayajothi Cements that was announced in early August 2013. However with CRH itself having just reported that it made a loss in the first half of 2013 it may be regretting that it finally has a presence in the south of India.
