Indian cement maker profits rising on firm prices

Indian cement maker profits rising on firm prices
Published: 14 April 2004

Indian cement makers are expected to report robust earnings growth for the January to March quarter as prices revive in a busy construction season in the world’s biggest cement market after China.  However, analysts said the near-term view was clouded by overcapacity, with more than 50 cement manufacturers producing 117 million tonnes of the commodity in India in the year ended March. The total installed capacity is about 142 million tonnes.

Cement prices in the past quarter were about 10 percent higher than a year earlier, which analysts said would boost profits. But overall shipments for the year ended March rose just 5.5 percent, belying expectations of nine percent growth, as rural demand did not rise as expected.  Analysts and fund managers are bullish on the sector in the long run, as a booming economy will drive demand and the government is expected to build roads and improve infrastructure such as ports.

India goes to the polls this month and the government’s campaign includes a programme of improved infrastructure.  "The demand drivers are in place in the form of a housing boom and emphasis on infrastructure developments," said Novonil Guha, a cement analyst with SBI Capital Markets.  Industry leader Associated Cement Companies Ltd (ACC) is expected to report a near 28 percent rise in March quarter earnings to 750 million rupees, based on the median of a Reuters poll of 12 brokerages.  Gujarat Ambuja Cements, the fourth-biggest maker, is expected to report on Friday a 45 percent rise in quarterly net profit from a year earlier to a median 972 million rupees.  These are two pure cement plays in India, while diversified Grasim Industries Ltd and Larsen & Toubro Ltd are respectively the second-and third-largest cement makers.

The Indian economy is forecast to expand more than eight percent in the year ended March and analysts said cement demand would grow by a similar margin this year.  "We are bullish on the sector in the long run as demand is expected to be strong post-monsoons, which will also lift prices," said Sharad Shukla, head of portfolio management services at local brokerage IL&FS Investsmart.  But other analysts said the recent spike in cement prices was unlikely to be sustained as fresh capacity hit the market.