After posting strong growth in the first three quarters of financial year 2011-12, cement companies are expected to post only a moderate increase in net profit in the fourth quarter.
An analysis of the March quarter preview by 14 brokerages suggested 20 per cent growth in net sales and 13 per cent rise in net profit. Operating margins remained largely unchanged at the year-ago level, mostly due to rise in cost of production.
Revenue growth was 20 per cent. In the second and third quarter, revenue growth was 23-28 per cent. Average all-India realisation is expected to be higher by 10 per cent year-on-year and five per cent quarter-on-quarter. Cement prices rose Rs 10-40/bag (50 kg) in the month of March, the full impact of which would be reflected in the first quarter of 2012-13.
The increase in fourth quarter volumes has led to improvement in capacity utilisation levels, expected at 81 per cent for the industry, with ACC, Ambuja and Shree having 90 per cent. Dalmia recorded the lowest utilisation at 65 per cent due to the relatively low demand in the south, whereas JK Laxmi Cement reported the highest, of above 100 per cent.
Among majors, UltraTech Cement is expected to underperform the sector in terms of sales and profit, due to higher operating costs in the quarter.
ACC, Ambuja Cement, Madras Cement and Shree Cement are expected to show strong revenue growth and profit growth will be strong for Shree and Madras Cement. India Cement, JK Laxmi Cement and Mangalam Cement are also expected to post robust growth in profit.
Operating margins are set to reflect realisation-led improvement. The sustenance of which is in question, as cost pressure continues to remain a concern, says the cement analyst at MSFL Research. The rise in rail freight and excise duty, though currently fully passed on to end-users, and expected volatility of prices in the light of growing regulatory risk, may add pressure to operating margins.
The cement analyst at Kotak Securities expects companies may continue to witness cost pressures, led by higher freight and input costs.
Imported coal prices have come down during the quarter and companies having higher imported coal component, such as India Cements, may benefit during the quarter. The government has also reduced import duty on coal in the Union budget but the impact of lower duties would be reflected fully only from the first quarter of 2012-13 onwards.
Higher coal (linkage and imported), freight (rail and road) and raw material costs continue to exert tremendous pressure on the industry, reports the analyst at JM Financial. Cost of production for major companies increased by Rs 700-800/tonne or Rs 35-40/bag between 2009-10 and 2011-12. Most managements expect cost of production to increase in a gradual manner over the next two years, the analyst added.