Robust growth in sales, profit likely

The quarter ended June 2009 is expected to be one of the best quarters for the cement sector as 11 large- and mid-size companies are likely to post a double-digit growth in sales and a strong 20 per cent rise in net profit. Operating margins of these companies, too, are expected to increase by 180 basis points.

The first-quarter expectations for the cement sector are based on results previews done by Angel Broking, BNP India, CLSA India, Edelweiss Research, KR Choksey Research, Macquarie Research, Merrill Lynch, Morgan Stanley, Motilal Oswal Securities, Prabhudas Lilladher and Religare Research.
 

QUARTERLY EXPECTATION
	Year-on-Year growth rate (in per cent)

Net sales Operating profitNet profit ACC10.2345.8144.99 Ambuja Cements14.1320.2320.35 Birla Corp11.414.09-5.45 Grasim8.697.169.08 India Cements12.12-2.49-5.71 JK Lakshmi16.2250.2695.61 Madras Cements15.1016.3718.60 Mangalam Cement28.1722.5223.44 Orient Papers13.088.3719.52 Shree Cement34.3969.0293.30 UltraTech Cement23.6828.2424.81

The 11 companies tracked by these brokerages are: Grasim, ACC, Ambuja Cement, India Cement, UltraTech Cement, Birla Corporation, JK Lakshmi Cement, Madras Cement, Mangalam Cement, Shree Cement and Orient Cement and Papers. These companies are tracked for studies like this largely because of their domestic market share. As per these previews, the growth in sales and profit of these companies is attributed to a 11.3 per cent rise in volume, a 65 per cent decline in prices of imported coal, a 5-8 per cent increase in realisation and rise in prices of cement by Rs 5-20 per bag. All the regions have posted volume growth in double digits during the quarter with the northern region leading with a strong consumption growth of 22 per cent.

Export realisations for cement companies, however, have declined further by $5 to $50-52 per tonne. According to a cement analyst at Motilal Oswal Securities, clinker realisations have declined by $3 to $45-48 per tonne. The decline in export realisations is likely to impact UltraTech Cement and Ambuja Cement the most. However, demand from export markets remains stable, says the analyst.

While all the 11 companies studied here are likely to post a 14 per cent rise in net sales, Shree Cement, Mangalam Cement and UltraTech Cement are expected to outperform the sector with an expected sales growth of 25-35 per cent. The higher price realisation is expected to push up the profit by over 25 per cent, driven by ACC, JK Lakshmi, Mangalam Cement, Shree Cement and UltraTech Cement.

Among the major cement companies covered in the study, Grasim is expected to post a 25.5 per cent rise in sales due to the commencement of its new 4.5 million tonnes capacity in Rajasthan. Its margins are likely to expand by 160 basis points due to higher realisations and lower energy cost.

ACC is expected to post a 10 per cent rise in net sales, while its net profit is likely to rise by over 40 per cent, thanks to a 700-800-basis point increase in its operating margin.