India: June quarter expected to be a mixed bag for cement majors

India: June quarter expected to be a mixed bag for cement majors
Published: 08 July 2011

The volume-wise performance of the top three domestic cement players, namely ACC, Ambuja Cements and UltraTech Cement YoY for the April-June quarter is expected to be a mixed bag, says ICICI Securities. While ACC Cement will project a 12% growth, UltraTech and Ambuja Cement are expected to witness 2-3% volume decline. However, volumes are likely to pick up after monsoon and festive season, says the firm.
Overall, cement majors are expected to see flat growth of 2% for the quarter owing to lack of government spends on infrastructure, especially in southern India. All-India average realisation is expected to be higher by 7.5% YoY. “Given the pricing and production discipline over the past three quarters, ISEC does not expect any negative surprise in terms of price fall in a seasonally weak monsoon period.
On the flip side, utilisation rates are estimated to decline 73% during the quarter under preview across regions. The average cost increased almost 11% during the quarter with international coal prices up 30% and domestic coal cost higher by 30% QoQ. Accordingly, the EBITDA is expected to fall 15% YoY and 7.6% QoQ.
“ACC and Grasim remain our top picks. Higher volume growth, better market mix and attractive valuations at US$110/t make ACC our top pick in the sector. The holding company discount of ~35% to Grasim Industries’ cement business, in our view, is unwarranted and we expect the discount to reduce,” says the report by ISEC.
However, PINC Research estimates, “After an improvement in capacity utilisation in the peak March quarter, the cement industry is expected to post 7% sequential decline in volumes. Capacity utilisation in the southern region continues to remain significantly low as the dual effect of oversupply and subdued demand remains unchanged.
“Increases on the cost front mainly on account of power and freight are expected to blunt margins in the current quarter. EBITDA is expected to marginally decline from the high of Q4FY11,” states the report.
PINC Research is bullish UltraTech cement and has recommended buy rating on the stock with a target of INR1312 (US$29.6) in its research report. The firm has recommended a hold rating on ACC and Ambuja cement with a target of INR1093 (US$24.6) and INR135 (US$3.04), respectively.