Cement companies are expected to put up a good show in the June quarter. With companies working above 90% capacity and since no major additions have taken place this quarter, Anagram Stock Broking expects the sector to achieve earnings growth on the back of higher realisations rather than volume.
After the finance minister announced the dual tax structure in the 2007-08 Budget, many cement manufacturers increased prices to pass on the excise burden to consumers. The brokerage expects India Cements and Shree Cement to have more upside than Ultratech and Ambuja Cement.
The company is expected to record 30% rise in net profit to Rs 386 crore and net sales grow 27.4% to Rs 1814.7 crore on year-on-year basis. Profit after tax for the quarter ended June 30 is expected to be flat at Rs 401 crore. ACC’s despatches grew 13.6% year-on-year to 5.26Mt during the quarter.
On the expenditure front, power costs/tonne may decline by around Rs 37 per tonne as the company will capitalise on the 25MW captive power plant at Lakheri, which commenced trial production in the last quarter, Anagram says.
At current market price of Rs 1,037, the stock has been trading at enterprise value/tonne of $228. Anagram believes that the June quarter results would boost the stock, despite the current run-up of more than 10% on the back of finance minister’s announcement.
The company registered 16.3% jump in despatches to 4.38Mt. It is expected to post bottomline growth of 29.7% to Rs 394.2 crore. Ambuja Cement will also earn extraordinary income to the tune of Rs 330 crore from the sale of its two-acre land in Mumbai, the brokerage said in its earnings preview.
Operating profit is anticipated to grow by 39.2% to Rs 603.3 crore on year-on-year basis. Power costs are likely to drop to Rs 490 per tonne from Rs 530 per tonne while raw material and administration costs are expected to rise on per tonne basis, but remain flat on percentage of sales basis.
At current market price of Rs 130, the stock is trading at EV/EBITDA of $282. With capacity addition of 2Mt, the capacity utilisation is expected to come down. Anagram believes the company’s current valuation is justified as long as it remains the most efficient producer among the large players.