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South-based cement players stole the limelight, with their June quarter performance surpassing that of their all-India and other regional peers. The quarter had been soft for most cement companies as weak demand took a toll on realisations across regions, barring the south. The pricing and production discipline by south-based cement players, however, led to good realisations boosting their performance despite weak volumes. The earnings before interest, taxes, depreciation and amortisation (Ebitda) per tonne reported by Ramco Cements and India Cements almost to Rs 1,144 and Rs 961 (up 116 per cent and 114 per cent, respectively).
Comparatively, players barring those based in the south saw deterioration in Ebitda by Rs 200-650 a tonne, according to analysts at Reliance Broking.
The good realisation trend continues in the September quarter. Monthly channel checks by analysts show the average cement price in the south were ruling Rs 350-355 a bag (flat month-on-month and up seven per cent year-on-year) mainly on account of production discipline maintained by companies in the region. With the onset of monsoon, north India has seen per-bag prices decline 17 per cent year-on-year and four per cent month-on-month. Central and eastern India, too, has seen prices correct while the west, which had seen significant price erosion, has seen a marginal rebound. With realisations firm and demand boost expected in the second half of FY16, the prospects of south-based companies should get further boost. Between the two companies, Ramco is better placed having a stronger balance sheet, lower exposure to Andhra/Telan-gana where demand pick-up will take slightly longer and where there is already excess capacities.
India Cements, too, is likely to benefit, but its elevated debt is an overhang. Analysts at ICICI Securities say India Cements has investments worth Rs 2,300 crore in non-cement assets that are low return on equity businesses. While lower utilisation in cement has kept its operating cash flows under pressure, they expect increase in working capital requirements and capex of Rs 300 crore in FY16 for refurbishing old cement capacities, leading to debt remaining high.
Analysts at Reliance Securities also say higher debt is likely to remain an overhang for the medium-term though over a period of time revived vintage plants can lead to possible re-rating. A large part of the concerns, however, is reflecting in its enterprise value per tonne valuations of $65, which for Ramco is $120.
Among others, Dalmia Bharat, JK Cement and Orient Cement also stand to gain, but these companies also have exposure to other markets, which might dilute some of the gains.
