Cement makers hike discounts after Adani foray: Report

The average discounts offered per tonne of cement by UltraTech Cement, Shree Cement and Dalmia Bharat increased consistently over FY23 and FY24, shows the 8 December report. Ramco Cements saw a sharp drop in discounts in FY23 before a hike in FY24, the data show.

However, Ambuja Cements and ACC, the companies purchased by the Adani Group for its cement foray, gradually reduced discounts over the same period. Discounting at Ambuja and ACC dropped at a compounded annual rate of 18% and 13%, respectively, between FY22 and FY24.

“Further, (the) likes of (Shree Cement) hasn’t only witnessed increase in discounts, but also credit days, which even stands visible on 1HFY25 basis, a reflection of competitive intensity,” the Investec analysts noted. Average receivable days for Shree Cement increased from 15 days in FY22 to 20 days in FY23, before moderating to 17 days in FY24, the data show.

The discounts are offered by cement companies to their distributors and dealers, who then pass those on to end buyers. These include cash discounts based on promptness in payment by the distributors, discounts based on purchase quantity as well as special discounts, as per the report.

Impact of discounting

The discounting is “indicative of increasing competitive intensity in the space, which has a bearing on margins”, said Ritesh Shah, head of mid-market research coverage and ESG at Investec.

“Mills don’t want to lose out on market share, even if it means compromising on profitability (or) return ratios, an unfortunate reality. This implies the need to operate at RoICs (return on invested capital) just to match up on WACC (weighted average cost of capital) or probably lower, a value dilutive proposition,” the Investec report said, highlighting that the cement companies are making just enough to pay their interest costs. 

The oversupply situation is further exacerbated as large cement makers like UltraTech and the Adani Group are acquiring smaller units and improving their capacity utilization levels, resulting in more production from the same assets, the Investec analysts noted in their report.

UltraTech, Adani, Dalmia Bharat and Shree did not respond to Mint’s emails seeking comment. Ramco Cement could not be reached.

The discounting is only expected to intensify after cement makers looked to increase prices in recent weeks.

“In the current context of attempted price increases, we see discounts for mills increasing, with mills probably claiming price equalizer component moving up, without altering channel economics,” the analysts noted.

India’s top cement makers include Aditya Birla Group flagship UltraTech Cement, Adani Cements, Shree Cement, Dalmia Bharat, Nuvoco Vistas and Ramco Cement.