Strong volumes & higher prices to drive earnings of cement cos, India

Strong volumes & higher prices to drive earnings of cement cos, India
Published: 10 October 2007

Strong volumes and higher prices is expected to drive earnings growth of cement companies, which are all set to deliver good results in the second quarter of the current fiscal. Prices and demand is likely to gain momentum once summer sets in and the construction and infrastructure projects resume.

Devoid of the otherwise usual softening of demand during the July-September quarter, the earnings preview of most brokerages expect volumes to grow in the range of 12-13%. The bottomline of cement majors is expected to be up in the range of 45-50%.

“Given the strong demand and likely delays in capacity additions, we are bullish on the cement sector. We expect cement prices to remain buoyant till the end of FY09. Investors are advised to accumulate stocks in the cement sector,” said Novonil Guha, cement analyst of Prabhudas Lilladher.

Cement demand continued to grow at a robust pace during the considered quarter. High growth in demand and limited capacity addition has resulted in continuously higher capacity utilisation for industry, opine analysts. For the second quarter, the cement industry’s capacity utilisation reached 92% vis-à-vis 85% in the second quarter last fiscal. “Capacity utilisation for the industry is expected to remain high due to continued higher demand and low-capacity addition. We believe that cement imports to India are not feasible, despite the government abolishing all import barriers,” said a report put out by Motilal Oswal Securities.

As far as projections and estimates on individual companies go, the topline growth of ACC and Ambuja Cements is likely to be low on the back of a fall in volumes during the monsoon season. Apart from higher cement prices, Grasim will benefit from strong VSF (viscose staple fibre) prices as well, which are up 21% y-o-y.