Lower demand, prices to affect most Indian producers

Lower demand, prices to affect most Indian producers
Published: 20 October 2010

Two of India’s top three cement makers are likely to post a drop in net profit for the quarter ended September 30, due to a fall in demand, lower prices and higher costs.

Among the three, UltraTech Cement Ltd, India’s largest cement maker by capacity, may show a growth in sales, benefiting from its merger with Samruddhi Cement Ltd.

Goldman Sachs estimates that cement prices in India fell 10%-15% in the July-September quarter.
The June-September monsoon traditionally slows construction activity, and the impact was more pronounced this year as the rains in north India--a major cement-consuming region--was heavier than usual, Standard Chartered said in a report.

Capacity utilization for the industry during the July-September quarter was likely around 68%-70%, said Angel Broking.

UltraTech Cement will likely report a 5% rise in second-quarter net profit to INR2.63bn on revenue of INR32.21bn, according to the average of forecasts by 15 analysts.

A year earlier, the company posted a net profit of INR2.51 billion on sales of INR15.58 billion.

The results aren’t strictly comparable, because, a year earlier, UltraTech’s parent Grasim Industries had a separate cement division, which has now been merged with UltraTech. Credit Suisse expects UltraTech’s average product price for the quarter to fall 17%-18% from a year earlier due to its exposure to the intensely competitive southern region, which saw the steepest price fall in the quarter.

For ACC, 17 analysts, on an average, expect the company’s third-quarter net profit to fall 54% to INR2.02bn on sales that will likely shrink 14.6% to INR17.12bn. A year earlier, the company’s net profit was INR4.36bn on sales of INR20.05bn.

Motilal Oswal Securities expects ACC’s sales to decline along with its EBITDA margin, which may shrink to 19.5%, hit by lower realizations, negative operating leverage and higher freight costs.
Ambuja Cements Ltd.

Ambuja Cements’ net profit will likely slide 33% to INR2.13bn with sales dropping 3% to INR15.83bn, according to a poll of 18 analysts. The company reported a net profit of INR3.18bn on sales of INR16.43bn a year earlier.

Ambuja Cements is likely to show a fall in sales, hit by lower product prices. Its profit margin may decline 230 basis points, according to India Infoline.