Weak demand impacts growth of Sagar Cements

MUMBAI: The performance of Hyderabad based Sagar Cement has been impacted on account of weak demand in Andhra Pradesh - its major supply market. However, the recent commissioning of its new capacity in Karnataka will help the company to reduce its exposure in Andhra Pradesh market.

Over the past one year, political uncertainty had led to lower construction activity in Andhra Pradesh. Sagar cements sells nearly 50 per cent of its volumes in this state. Because of the weak demand, the company’s cement dispatches have been lower by 7 per cent y-o-y in the nine months ending December 2012. In addition, non-availability of continuous power supply and higher freight costs has added to the woes of the company. In the nine months ending December 2012, its profit dropped 69 per cent y-o-y to Rs 13 crore.

Sagar Cements recently commissioned 2.75 MT capacity plant in Gulbarga, Karnataka. This plant is set up in a joint venture with Vicat S.A. of France. The company expects to supply to Maharashtra and Karnataka from this plant. As a result, it intends to reduce its exposure to Andhra Pradesh to 35 per cent from 50 per cent currently.

Going forward, construction activity is likely to pick up due to state elections in Karnataka and Andhra Pradesh in 2013 and 2014 respectively. In addition, lower reliance on a particular state in likely to improve its earnings in the coming quarters.