Delayed monsoon to benefit earnings, India

Delayed monsoon to benefit earnings, India
Published: 15 October 2009

India’s top four cement companies - ACC, Ambuja Cements, Grasim and Ultratech Cement - are expected to report improved earnings on a YoY basis
Past performance of cement stocks in the September 2009 quarter, thanks largely to a reduction in key input costs such as power and fuel on a per-tonne basis on a YoY basis, coupled with lower freight costs.

These cement majors are expected to report a 34.7% YoY growth in their core net profit for the September ‘09 quarter compared with a 27.1% growth reported in the June 2009 quarter, given the beneficial impact of lower power and fuel costs. Imported coal prices at US$75–80/t in the September ‘09 quarter are lower by about 50% on a YoY basis.

What has also helped is the delay in rains in several parts of the country, which has helped ensure continued strong demand conditions in the September ‘09 quarter from segments such as government-funded infrastructure projects and the housing sector in smaller towns and rural areas.

Typically, cement prices weaken during the monsoon season. But this trend was more visible, especially in some southern markets. However, on an all-India basis, cement prices are estimated as broadly flat on a Y-o-Y basis at Rs 3,670 per tonne levels during the September ‘09 quarter, going by various estimates.

Improved demand conditions for the cement industry in the September ‘09 quarter have come at a time, when the industry is projected to add nearly 50 million tonne of capacity over the next 18 months.

However, the performance of the September ‘09 quarter and the earlier June quarter are not strictly comparable, taking into account the monsoon season.

For an all-India player like ACC, according to ETIG and various brokerage house estimates, the company ‘s net sales are expected to grow by 1.8% Y-o-Y to Rs 1,999.6 crore in the September ‘09 quarter, given a 3% Y-o-Y growth in its cement dispatches, coupled with broadly flat cement realisations. However, analysts are expecting a 52.9% Y-o-Y growth in its net profit in the second quarter of FY10, coming from lower costs.

For Ambuja Cements, analysts are forecasting a 15.5% Y-o-Y growth in its net sales in the September ‘09 quarter. Its cement dispatches grew by 5.5% in September ‘09 quarter, coupled with an estimated 8.7% Y-o-Y growth in realisations.