Slowdown in earnings expected for Indian cement firms

Slowdown in earnings expected for Indian cement firms
Published: 11 November 2009

The robust growth in net profit in the second quarter seems unlikely to be repeated soon for Indian cement companies, as prices in the south and west have been falling since October, with the increase in supply outstripping demand.

According to a cement analyst at IIFL Research, price cuts have become a daily occurrence in the southern markets, but are stable in central region. In Gujarat, price declines have accelerated, as supplies originally intended for exports have been diverted to the domestic market due to poor demand from West Asia.

At present, cement is cheapest in Hyderabad, at Rs 123–145 per bag of 50 kg — down 18 per cent in the past two weeks and 45 per cent from the peak price reached in April. Cement prices in the south have dropped by Rs 15-30 a bag, due to sharp increase in supplies from small and medium cement. In Gujarat, price has declined by Rs 15-20 a bag as exports to West Asia have taken a hit. Increasing supplies from the south to Maharashtra have depressed prices by Rs 10-20 a bag. Prices have declined by Rs 10-15 per bag in the central region on increasing supplies.

J Radhakrishnan, cement analyst at IIFL, expects subdued third quarter performance from South-based companies, but says Northern and Eastern region companies are likely to do well. Going ahead, cement capacity addition is expected to be 25Mt, of which 10Mt would come up in the southern market.

The company expects downward pressure on pricing, but since the cost structure has also fallen, the operating impact would be negligible. Overall, the third and fourth quarter of the current financial year may not be appealing.

Source: Business Standard