Cement sector to see good results in Q2

Cement sector to see good results in Q2
Published: 15 October 2007

The cement sector, which is going through a cyclical upturn at present, is expected to report excellent results in second quarter of FY2008. Analysts expect the YoY volumes to be higher by 12.6% and price to be higher by 9.6%. On a quarter on quarter (QoQ) basis, the volumes are expected to be lower by 4.8% but prices, higher by 2.5%. Says Pooja Kachhawa, an analyst with Mehta Equities Ltd, "We anticipate the results to be in line with our expectations. The cement dispatch figures have shown an increased this quarter despite the monsoon. We expect a good result this quarter compared to the corresponding quarter last year." Motilal Oswal Securities, in its report, expects most cement companies to report around 11% volume growth, driven primarily by strong volume growth of 35% for Shree Cement, 24% for India Cement (due to Visaka Cements merger) and 15% for ACC. However, other cement companies are expected to report muted volume growth, as they are operating at optimum capacity.  
 
 Overall, cement sector revenues are expected to grow by 23.5% YoY, with EBITDA margin expanding by 390bp to 34.7%, translating into 36.6% YoY increase in PAT, the report adds. According to the experts, in the Q2 of FY 2008, the cement industry’s capacity utilisation reached 92% versus 85% in Q2 of FY 2007. The capacity utilization is higher and is expected to remain high because of the increasing demand and limited capacity addition. The outlook for the sector remains positive on the back of two fundamentals i.e., expectation of demand growth at 10% CAGR over FY06-FY09, and firm cement prices. As inflation numbers tend to go down, the industry would enjoy better pricing flexibility based on demand-supply equilibrium, the report adds.