Cement cos to see 40% topline growth in Q2, India

Cement cos to see 40% topline growth in Q2, India
Published: 16 October 2006

The promising times for cement companies continue. Analysts FE spoke to expect the sector to register a growth of 38-40% in their topline, EBITDA to double and profit to grow three times more than the year-ago period.

While Lafarge is already out with its half yearly results, the operating margins from its Asian operations have doubled to 9% from the year-ago period of 4.5%. In its presentation to analysts, Lafarge also says that it performed well in India and the Philippines.

Net sales of the company has also grown almost 26% in the region.

“If Lafarge, with a comparatively lower capacity of 5.5 MTPA, could post such good numbers, then the peers will post better numbers,” says a Mumbai-based analyst.

DSP Merrill Lynch’s report on the sector sees doubling of EBIDTA and tripling of sectoral profits mainly due to higher cement prices. Cement prices, which were selling at an all-time high, marginally corrected itself owing to lower demand during the monsoons.

Analysts and reports from broking firms unanimously agree that cement prices are north bound. "The demand is healthy," says Rajan Kumar, an analyst tracking the cement sector with Networth Stockbroking Ltd. On import parity basis, there is scope for further appreciation of cement prices by Rs 20-25 per bag. Companies might hike prices to bring it to a level of Rs 250 for a 50 kg bag. Kumar also expects profits to double on the back of 8-9% growth in volumes and a growth of 35-40% in net sales.

“The cement consumption in the southern region has maintained a very healthy 20% growth. Further, the sales tax rate in Tamil Nadu has been reduced from an average rate of 23.5% to 14.5% and cement players have not passed on this benefit to the consumer, which was clearly visible in Q1FY2007. Hence, we expect south-based cement manufacturers to deliver a superlative performance,” says a report on the cement sector from Sharekhan.

Analysts expect cement prices to go up when construction activity in the country gains full steam. "Cement prices are expected to rise by Rs 5-8 per 50 kg bag during November 2006," adds the ShareKhan report.