Indian cement makers’ profit seen soaring

Indian cement makers’ profit seen soaring
Published: 18 January 2007

Indian cement companies should report robust quarterly earnings growth helped by higher prices and strong demand, a trend expected to continue in coming months on rising investment in roads, bridges and houses.

India is pouring money into infrastructure projects such as airports and highways to feed an economy expanding by more than 8 per cent a year, while rising affluence has spurred a housing boom.

"The ongoing upturn in the cement cycle is expected to be sustained at least for a further 18 months, translating into a strong pricing environment in the interim," analyst Jinesh Gandhi at Motilal Oswal Securities said in a report.

UltraTech Cement Ltd, a subsidiary of diversified Grasim Industries Ltd, will kick off the sector’s earnings reporting season on Thursday. According to a Reuters analysts’ poll, UltraTech could see quarterly profits soar more than eight times to Rs 1.96 billion.

India’s housing sector, which contributes about 55 per cent of the demand growth for cement, shows no sign of waning and demand is also to rise further from massive investments in townships and special economic zones.

At the same time, new cement-making capacity could be lower than estimated because of delays in commissioning new plants and issues over land acquisition, giving a further push to cement prices that rose 30 per cent in October-December from a year earlier, analysts said.

Indian cement prices could move up by about 35 per cent in the next 12 months, driven by a 10 per cent compound annual growth in demand, compared with 8.3 per cent supply growth over fiscal 2006-09, Deutsche Bank said in a November report.

India has more than four dozen big cement makers running about 365 plants with a capacity to make 165Mta.

"Although around 75Mt of capacity addition has already been announced, meaningful capacity addition would be operational only by end FY08 and in FY09 (assuming no delays)," Gandhi said.

ACC Ltd, India’s second-largest cement producer that is a third owned by Switzerland’s Holcim , is expected to report a 53 per cent rise in net profit to Rs 2.94bn($66.4m) despite subdued volume growth constrained by capacity, according to a Reuters poll of 10 brokerages.

Average industry sales in volume terms rose about 10 per cent in the three months from October through December.

India’s top cement producer Grasim Industries, which gets about 60 per cent of its revenue from the product, is expected to report on Jan 23 that October-December profit rose 145 percent.

Gujarat Ambuja Cements Ltd, the number-three producer in which Holcim holds about 21 per cent, is expected to post a three-fold jump in earnings helped by a merger of a unit.