India Cements, a prominent cement manufacturer, reported a significant widening of its net loss to Rs 240 crore in the September quarter, compared to Rs 81.39 crore in the same period last year, along with a revenue decline of 17% to Rs 1,017 crore. The company attributed this to cost pressures, lower demand, and industry challenges, leading to a pre-tax loss of Rs 132.23 crore. Amid ongoing financial strain, India Cements recently entered into a share purchase agreement with UltraTech Cement, selling a 28.42% equity stake at Rs 390 per share, with approvals pending. Additionally, efforts to monetise assets, including land and solar plant investments, underscore the company’s strategy to alleviate operational stress and improve liquidity.

Widening Losses and Declining Revenue in Q2 FY25

Quarterly Financial Setback: India Cements reported a net loss of Rs 240 crore for the quarter ending September, a considerable increase from the Rs 81.39 crore loss in the same period last year. The company’s revenue declined by 17% YoY to Rs 1,017 crore, marking a challenging period for the cement giant.
Revenue Drop in Operations: Revenue from operations specifically fell by 18.39% YoY, totaling Rs 1,031.80 crore in Q2 FY25, reflecting the ongoing demand slump and pricing challenges in the industry.

Pre-tax Loss and Exceptional Items: The company’s pre-tax loss for the quarter stood at Rs 132.23 crore, up from a pre-tax loss of Rs 102.95 crore in Q2 FY24. Additionally, India Cements reported exceptional items amounting to Rs 223.24 crore during the quarter.

Expense Breakdown and Rising Finance Costs

Overall Expense Reduction: Total expenses for the quarter dropped by 3.8% YoY to Rs 1,322.98 crore, driven by cost-management efforts despite operational challenges.
Employee and Finance Costs: Employee benefits expenses decreased by 3.99% YoY, totaling Rs 96.13 crore. In contrast, finance costs surged by 21.42% YoY to Rs 73.33 crore, reflecting increased debt servicing and interest obligations.

Half-Yearly Performance Overview

H1 FY25 Losses Mount: For the first half of FY25, India Cements reported a net loss of Rs 267.82 crore, compared to Rs 159.12 crore in H1 FY24. Revenue from operations also dropped by 23.78% YoY to Rs 2,058.56 crore.
Liquidity Relief through Subsidiary Returns: The company expects a substantial inflow from subsidiaries and associates by way of loan and advance returns, which it anticipates will ease operational stress.

UltraTech Cement’s Strategic Stake Acquisition

Stake Sale Agreement: In June 2024, UltraTech Cement announced its intent to acquire approximately a 23% stake in India Cements. Subsequently, India Cements entered into a Share Purchase Agreement with UltraTech on July 28, selling 8.80 crore shares or 28.42% of its paid-up equity capital at Rs 390 per share.
Pending Approvals: This acquisition, along with an open offer, is subject to regulatory approvals, including the Competition Commission of India (CCI), as required for major transactions in the cement industry.

Strategic Rationale Behind the Stake Sale

Cost Pressures and Market Competition: Addressing employees, former Managing Director N Srinivasan cited persistent cost pressures, competitive pricing, and challenges in monetising assets as factors driving the decision to sell the stake to UltraTech.
Operational Adjustments: Following a prolonged monsoon and general elections that impacted demand, the company previously expressed expectations for an uptick in volumes after June.

Asset Monetisation Efforts for Improved Liquidity

Non-Core Asset Sales: To bolster liquidity, India Cements has actively pursued the sale of non-core assets. Notably, it divested its grinding unit in Parli, Maharashtra, to UltraTech in April, signalling a focus on core operations.
Sustainable Energy Initiatives: India Cements has entered into agreements for solar power installations on surplus land, aiming to reduce power costs and further optimize operational expenses.