INDIA: Slow demand, input cost mattered most to cement cos in Q2

Moneycontrol Bureau

Low price regime and sluggish demand from the real estate sector continues to squeeze toplines of cement companies even in the July-September quarter, say analysts. While the coal price rise is well known, most other raw material prices have been rising steadily for the past few quarters---making it difficult for the industry to return to profitability anytime soon.

Though cement despatches grew by around 8% on low base during the quarter under review, demand is yet to reflect strength. In addition to this, an increase in effective excise duty rates will lower cement manufacturers’ net price realisations by 2-4% feel industry experts.

With negative factors at play, the sector will see a revenue decline of around 12% quarter-on-quarter (Q-o-Q) and industry EBITDA is also likely to see a dip of around 40% as companies have not been able to enjoy pricing power as they did in the Jan-March quarter of FY11 when demand was higher.

Meanwhile, India has 290 million tones per annum (mtpa) cement-making capacity installed which is largely dominated by UltraTech , Grasim andJaiprakash Associates with a collective production of 122 mtpa

Take a look at what brokerages are saying about these cement companies’ performance duinrg the July-Sept quarter.

An analysis done by Sharekhan says that UltraTech is expected to post a decline of 1.4% in its volume on account of a sluggish demand. However, its revenue is estimated to increase by 19% supported by a strong growth in its realisations Y-o-Y. But cost inflation, in terms of an increase in coal prices and freight cost will partially offset the positive impact of the increase in the realisation. The brokerage further says on account of an increase in its interest and depreciation charges, JP Associates net profit is expected to decline by 64% Y-o-Y to Rs 41.4 crore. Grasim too will witness a sharp decline in its revenues and net profit by around 40% and 45% respectively.

Emkay Securities has maintained a neutral stance on the sector after taking into account factors such as high interest and depreciation cost coupled with sluggish demand and poor pricing power. The firm sees a downside of 4% in UltraTech from its current level of Rs 1,093 as there is a strong likelihood for the company to see an around 45% decline in EBITDA to Rs 654 each tonne

Angel Broking expects JP Associates to report disappointing performance on the top-line and bottom-line fronts. “Sales are expected to be flat on a y-o-y basis, however the bottom line is expected to be hampered due to higher interest costs,” states the brokerage.