Indian cos in North, East may post higher profits

Indian cos in North, East may post higher profits
30 December 2009

The December quarter may see yet another period of strong numbers from Indian cement producers. However, a disparity between regions is likely.

Helped by good volumes, steady demand from government-led infrastructure projects and price increases, companies in the North and East may report higher profits. However, players in South could see slower growth in the light of surplus capacities in the region, price corrections and the recent political crisis in Andhra Pradesh.

Companies across regions may see a respite in their profit margins this quarter with savings in coal cost reflecting with a lag effect. Having already locked into long-term contracts for coal at higher prices, not many players in the South saw margin relief in the last two quarters despite the 50 per cent drop in global coal prices.

They may now reap the benefits of this correction. International coal prices are, however, on the rise again; after touching $65/tonne in September, prices are ruling at $81/tonne now (higher than $78/tonne in December 2008).

North and East: Showing strength

Northern cement companies may see both realisations and despatches support strong sales numbers this quarter. Prices have been Rs 10-12/bag higher (y-o-y) in the North and over Rs 20/ bag (YoY) in the East on the back of steady growth in demand.

While industrial projects support demand in the East, construction related to the Commonwealth Games and other infrastructure related spending by the government have been helping demand in the North. Players such as Grasim Industries, UltraTech Cement and Shree Cement have reported a 10-14 per cent increase in offtake in October and November.

South: Thumbs down

Southern cement companies could, however, report lower sales growth than the industry with lower prices impacting realisations. Volume growth in the region was reasonable on a low base effect. India Cements, the largest player in the South, has clocked a 30 per cent growth in despatches for October and November. The company’s despatches were down 8 per cent in the same period in 2008.

The southern pocket has seen price corrections with new capacities bunched up in this region. Of the total of 21.4 million tonnes of capacity added in FY09, 16.1 million tonnes were additions in the southern India. Cement prices on an average corrected by about Rs 10-15/bag (to Rs 250/bag at present) in the region. Prices in Andhra Pradesh are reported to be far lower at about Rs 170/bag.

Political uncertainties in Andhra Pradesh have slowed cement offtake in the region in December. With close to 30 per cent of the southern region’s cement consumption happening in this State, there could be an impact on overall despatches in the coming months.
Published under Cement News