Indian companies’ 2Q margins to improve

Indian companies’ 2Q margins to improve
Published: 12 October 2009

Cement consumption across India grew 14.6% during the July-August period driven by a strong growth in the northern and eastern regions, according to monthly data provided by the Cement Manufacturers Association. However, in September, growth is likely to come down to 8% owing to higher base and weakness in demand across the regions.

For the second quarter of the current fiscal, cement companies are expected to continue improving their margins year-on-year due to higher sales volumes and lower input costs of raw materials like imported coal, freight, fly ash, etc. Cement stocks during second quarter gained, with cement companies reporting good dispatch numbers.

According to the findings of four broking firms, the cement sector, in the second quarter of FY 2010, is expected to report a top line growth of 11-15% and around 40% increase in net profit.

Sharekhan, in its report, expects Shree Cement and Madras Cement to post an impressive sales growth of 42.9% and 28.9%, respectively, on the back of strong domestic demand and capacity addition carried out by them. The competitors caught napping so far as capacity hiking is concerned.

ACC Ltd and Ambuja Cement’s top line is expected to grow 33% and 29%, respectively, whereas Birla Group’s Grasim and UltraTech’s net sales may increase by 29.4% and 35%, respectively, according to an analysis by Angel Broking.

Demand during the quarter, especially in July and August, picked up owing to higher consumption from semi-urban and rural areas and higher infrastructure spending by the government. This resulted in cement players posting higher sales and realisations. However, demand in September was affected due to monsoons and increase in supply. Prices of cement during the quarter declined across the country by Rs 5-7 per bag on an average. However, the fuller impact of the drop in price will be visible in the third quarter.

On a Q-o-Q basis, cement companies’ top line and bottom line are expected to be low because of weak demand and monsoons.

"Volumes are expected to be down by 7-21% Q-o-Q for cement companies," said Akash Patel, an analyst with Edelweiss, in its research report.

According to experts, recovery in the real estate market and low-cost and affordable housing projects would improve demand in future.

"We maintain our underweight rating on the sector, primarily on account of massive addition across regions," said Prabhudas Lilladher in its report.

Source: Financial Express India