Prism Cement Ltd’s results for the December quarter were in line with the expectations of lower performance for the sector, compared with the previous quarter.
With a fall in prices in its key markets such as central India, net realizations of blended cement were lower by Rs596 per tonne at Rs3,001 per tonne when compared with the preceding three months. This was despite a 20% increase in despatches during the sequential period. However, compared year-on-year (y-o-y), despatches were lower by around 9%. Net sales, therefore, were nearly flat on a sequential basis at around Rs230 crore.
At first glance it seems that the operating profit grew by nearly 18% on a sequential basis and 28% y-o-y to around Rs72 crore. However, a point to note is that plant maintenance costs for Prism are typically incurred and charged during the second quarter. Hence, while maintenance costs were around Rs36 crore in the second quarter, it was only around Rs8 crore during the December quarter under consideration. This buoyed operating profit despite an increase in freight, power and fuel costs by about 3-4%.
Graphic: Yogesh Kumar / Mint
Hence, the operating profit margin expanded by about 4% sequentially to around 31% of sales. With no major increase in depreciation or interest costs, the net profit was around Rs42 crore, 20% higher on a sequential basis and about 34% higher on the year-ago period.
Analysts’ consensus is that realizations could improve in the fourth quarter as construction activity picks up in the central and southern regions of the country following the end of the monsoons. However, pricing pressure will remain throughout fiscal 2011 as surplus capacities from the northern and southern regions move into the central zone.
The dampener for the industry, as is well known, is the capacity additions that have all bunched up to go on stream during fiscal 2011. The effect this could have on the cement prices depends on the extent to which demand catches up.
Prism’s share price of around Rs51 discounts the analysts’ expected earnings of about Rs8 for the year to March around six times. The stock is no doubt a strong regional play. But, given the oversupply and pricing pressure on cement estimated in 2010-11 for the sector, it may be worthwhile to wait and watch.
Write to us at firstname.lastname@example.org