Strong rural demand helps India cement companies profits

Strong rural demand helps India cement companies profits
Published: 23 April 2009

India’s top two cement firms beat expectations with quarterly profit rising by up to 23 per cent and analysts forecast the growth would be maintained in the near-term on strong rural demand and large constructions.

Falling prices of raw materials such as coal and lower transport costs should help cement makers in India, the world’s largest market for the commodity after China, in April-June but large new capacity could weigh in later quarters, analysts said.

Producers will also be helped by a 2-3 per cent increase in cement prices effected in March, they said.

ACC Ltd , India’s largest cement maker that is 46 per cent owned by, on Wednesday said Jan-March profit rose 23 per cent to INR3.99bn (US$79m) on net sales that rose 14 per cent.

It beat analysts expectations for INR3.4bn profit and boosted ACC’s shares 5.3 per cent to 645.75 rupees in a weak Mumbai market.

ACC Managing Director Sumit Banerjee said brisk demand emerging from rural housing and large infrastructure projects helped boost cement consumption by 9 percent for the cement industry in the March quarter.

UltraTech Cement Ltd , part of India’s Aditya Birla group and the second-largest cement producer, posted an 11 percent rise in profit on Tuesday.

However, Ambuja Cements , also controlled by Holcim and the No. 3 player, said its quarterly profit rose a modest three per cent to INR3.34bn, matching expectations for 3.3 billion, on sales that grew 12 per cent.

Earlier this year, ACC forecast cement demand in 2009 would rise between 6-8 percent, lower than the 9.3 percent growth over the past five years, as a slowing Indian economy hit demand from housing and construction industries.

But India’s cement sector has seen demand reviving in the past few months, benefiting from surprising resilience in rural consumption and higher government spending on roads, highways and irrigation projects.

"April-June could be better as costs come down further and demand stays strong. But we need to see if this can be sustainable beyond the monsoon," said Rajan Kumar, sector analyst at Centrum Broking.

Demand in India usually weakens during the June-September annual monsoon and picks up in the December quarter.

Source: Reuters