Strong Q2 in store for cement firms ; Cement companies are likely to post robust growth in sales..

Strong Q2 in store for cement firms ; Cement companies are likely to post robust growth in sales..
Published: 05 October 2007

Indian cement companies are likely to post robust growth in sales and profit figures for the second quarter of the financial year, according to analysts.

Institutional equity research company Religare has pegged the growth in sales for the period at 27 per cent and 47.5 per cent growth in net profit as a result of higher capacity utilisation, commissioning of new capacities and a 10-20 per cent rise in prices. Operating profits too are projected to grow at 42.4 per cent.

Religare expects ACC, Ambuja Cement, Grasim, UltraTech, Shree Cement, India Cement, Orient Paper and Mangalam Cement to post growth in sales between 18.2 per cent (Grasim) and 47.4 per cent (Shree Cement).

It expects operating profits to grow more than 50 per cent for Orient Paper and Cement (66.1 per cent), India Cement (59.6 per cent) and UltraTech (50.7 per cent).

However, the operating profit would be below 50 per cent for Grasim (35.2 per cent), Shree Cement (38.4 per cent), Mangalam Cement (34.7 per cent) and Ambuja Cement (37 per cent). ACC is expected to post operating profit growth of 43.8 per cent, says Religare.

The net profit of Oriental Paper is expected to jump by 120 per cent, while that of UltraTech and India Cement may rise over 60 per cent. Growth in net profit of ACC is likely to be 53.7 per cent and that for Shree Cement 49.7 per cent. Grasim, Ambuja Cement and Mangalam Cement are expected to register net profit growth of more than 36 per cent each, says Religare. IL&FS Investsmart, another research and investment company, expects the sector to post net profit growth of over 57 per cent on the back of a 26 per cent rise in net sales.

It expects the operating profit to grow by about 49 per cent. The research firm also sees Grasim, UltraTech and India Cement outperforming the sector with a 50-70 per cent rise in operating profit.

IL&FS expects exports to decline by about 44 per cent, largely due to a healthy demand at home.

Despite the monsoon, cement prices increased marginally quarter on quarter across the country, with the southern region recording a rise of Rs 14.80 a bag. Unlike other regions, the monsoon will continue in the southern states in the third quarter too.

A cement analyst at Sharekhan, an equity investment company, expects good returns from south India as cement prices have jumped 15-20 per cent in the region compared with the all-India increase of 12 per cent.

The analyst does not see any major change in realisations on a sequential basis, except for the south-based companies.

More expectations:

ACC: Net sales should increase by 25.4 per cent year-on-year to Rs 1,720 crore on higher volumes (12 per cent) following the commissioning of additional capacity in Lakheri in April this year.

Price realisation for ACC should also be higher by 11.9 per cent. Operating profit will rise by 43.8 per cent to Rs 530 crore. Operating margins will be mainly driven by higher realisations (up about 400 basis points) to 30.6 per cent.

Ambuja Cement: Net sales should increase by 34.6 per cent to Rs 1,330 crore on higher volumes (22.7 per cent) from the merger of ACEL and an additional grinding unit in Farakka, West Bengal. Religare expects realisations to be higher by 9.7 per cent. Operating profit will rise by 37 per cent to Rs 490 crore. Operating margins will be mainly driven by higher realisations (up about 70 basis points) to 36.8 per cent.

Grasim: Net sales will rise by 18.2 per cent to Rs 2,380 crore. Net sales will be driven by higher cement volumes of 9 per cent, strong performance from the VSF business and an improvement in the performance of the sponge iron division. Operating profit will rise by 35.2 per cent to Rs 720 crore.

Analysts expect Grasim to post higher margins of 30.3 per cent for the quarter on higher cement volumes, higher VSF prices and an improvement in its sponge iron operations.