India cement cos expected to perform better in Q3

India cement cos expected to perform better in Q3
Published: 12 January 2009

The 206.46Mt cement industry is expected to post better financial performance in the third quarter of FY09 ending December 2008, as compared to the two previous quarters, say experts.

Driven by strong revival in dispatches in the last two months, cement volumes are estimated to have grown by 8.8% year on year (YoY) to 44.1Mt in Q3 FY09 against 40.8Mt in Q3 FY08.

According to analysts, on a quarter on quarter (QoQ) basis, cement companies are expected to register a 8.6% volume growth in the third quarter.

"Shree Cement, UltraTech Cement and Orient Paper and Industries are expected to record impressive volume growth of 27.4%, 11.4% and 13% respectively in Q3 FY09 due to capacity addition," said a Sharekhan Investors report.

In terms of realisation, south India-based companies are faring much better than companies operating in other regions. During the period under review, the gross realisation of cement across the nation declined on the back of the pass-through of the benefit of excise-duty cut.

Margins of cement companies are expected to remain under pressure YoY, mainly due to correction in cement prices. Margins of ACC Ltd, Ambuja Cement, Grasim and UltraTech are expected to decline.

"The operating profit margin is also expected to decline by about 257 basis points and a sharp increase in interest and depreciation charges due to capacity expansion will have an adverse impact on the bottomline of the cement companies," said the Sharekan report.

However, sharp correction in international coal prices during the quarter will help cement companies save cost sequentially. Also, reduction in diesel prices by Rs 2 per litre would help players save Rs 2-3 per bag on a sequential basis.

"During Q3 FY2009, cement prices were marginally down on a QoQ basis. Prices corrected more in the Northern markets due to lower demand and dumping of cement from Pakistan and reduction in excise duty by 4% on cement. However, the full impact of these factors will reflect in subsequent quarters," said Pawan Burde, analyst with Angel Broking.

The price of a 50 kg bag of cement is Rs 225 in Chennai, Rs 248 in Mumbai, Rs 224 in Delhi, Rs 230 in Kolkata and Rs 225 in Hyderabad. Prices are expected to soften further on account of supply exceeding demand in the market.