Indian cement makers to rake in 38% profit

Indian cement makers to rake in 38% profit
Published: 13 April 2007

Aided by a 25-30% growth in sales realisation and 7-8% growth in shipments, cement makers are expected to come out with a strong topline and bottomline growth during the March 2006 quarter.

According to ET poll of brokerage houses and analysts, the aggregate net sales of top six cement makers are likely to grow by 38% year-on-year (y-o-y) to Rs 7,898 crore, while their net profit is estimated to gallop by 70% y-o-y to Rs 1639 crore during the quarter. CLSA, for instance, expects the industry EBITDA/MT to rise by 3-7% q-o-q to Rs 1,100 – 1,300/mt. On aggregate basis, the industry’s operating margin is likely to improve by close to 900 basis points to 32.7% of net sales in Q4.

The star performer during the quarter is likely to be India Cement, thanks to a lower base in the previous year. Analyst expect the southern cement major’s net profit to more than quadruple to over Rs 112 crore, while its net sales is estimated to grow by 31% y-o-y, to Rs 556 crore.

The company’s profit margin is expected to get a boost from higher price realisation and stable input cost. Prabhudas Leeladhar, for example, estimates India Cement net sales realisation to rise 30% y-o-y to Rs 2,763/tonne, while its operational expenses is estimated to rise by 10% y-o-y only. This is estimated to push its operating margin by around 1,500 basis points to 32.5% of net sales during Q4.

Shree Cement is likely to retain its status as one of India’s most efficient cement producer, topping the industry with an operating margin of little over 45% of net sales, up by 900 basis points from the previous year. The company’s topline will gain from capacity expansion and 25-30% growth in net sales realisation.

Among national players, Ultratech Cement is likely to report the sharpest growth in bottomline, thanks to a lower base in the previous year.

Also due to 25-30% y-o-y improvement in net sales realisation, Ultratech’s operating margin is estimated to grow by around 1,500 basis points to 34% of net sales.

Grasim Industries is also likely to come out with a cracker of a result on account of higher sales realisation across all its three major product segments – cement, VSF and chemicals. Its operating margin is estimated to improve by 760 basis points to 30% of net sales in Q4. Gujarat Ambuja is likely to show one of the fastest topline growth among large player, riding on an over 20% growth in shipment and 25-30% improvement in net sales realisation. However, the company’s operating margin is likely to rise by 200 basis points only during March 2007 quarter due to a faster growth in freight cost.

In case of ACC, higher sales realisation is expected to more than compensate for a marginal dip in shipments due to maintenance shutdown in February. Country’s largest cement maker is estimated to report 756 basis points improvement in its operating margin to 30% of net sales during March 2006 quarter.