Sluggish demand growth to hit cement firms in Dec quarter

Cement companies are less likely to find relief in the third quarter of the current financial year. Despite a moderate rise in cement prices on a year’s comparison, a sharp increase in input costs and continuous sluggish demand growth may not allow cement makers to register growth in their net profits in the December quarter.

After a bad September quarter, when companies witnessed a dip as high as 96 per cent in their net profits, sector analysts see the December quarter, comparatively, a better one. But on the margin front, companies would continue to face pressure.

“Cement prices were volatile in the quarter, as pricing discipline improved in a few regions at the beginning of the quarter. But it deteriorated as some producers, who have recently added large capacities, undercut the market in response to persistent sluggishness in demand,” said India Infoline (IIFL) in its report.

ACC, a leading cement company, which reported a net decline of around 80 per cent in its profits in the September quarter, will continue to see it decline.

According to a report by Motilal Oswal, ACC’s net profit would be 40 per cent down during the quarter, compared to the corresponding period the previous year.

“While cement prices are up around 4 per cent, costs are higher by 10-15 per cent,” the IIFL note said. The national average price in the quarter was around Rs 238 for a bag of 50 kg cement.

UltraTech Cement, part of the domestic giant Aditya Birla Group, has emerged as the only major expected to report gains in its performance in the December quarter. “Backed by strong realisations in its key southern and western markets, Ebitda would grow by 71 per cent (q-o-q),” points out a report from Prabhudas Lilladher.
 

ESTIMATES FOR Q3 2010-11
Company	Net sales	Change (%)	Ebitda  margin (%)	Change (bps)	Net profit	Change (%)
ACC	1996.60	3.9	15.20	-720	185.2	38.9
Ambuja	1862.50	5.1	19.30	-520	214.1	11.2
UltraTech	3823.10	3.8	18.70	-820	325.9	66.3
Shree Cement	801.6	7.4	21.4	-1,730	30.7	81.8
Change is year-on-year                                                        Source: Motilal Oswal Securities

Industry analysts expect UltraTech to report a rise of close to 60 per cent in its net profit during the quarter. However, they add that results are not strictly comparable upon merger of Samruddhi Cement.

Ambuja Cements, one of the most efficient cement makers globally and sister-concern of ACC, is also likely to report a decline of 11 per cent annually. The company’s sales volume have increased, but realisations are likely to be weak owning to lower utilisation in the North. “Benefits (for Ambuja) from lower clinker costs were likely to be negated by an increase in international coal costs,” said IIFL note.

For regional companies, the quarter could be tougher.