Mumbai: Rising input costs are expected to dent the bottomlines of Indian mid-cap cement firms during the Jan-March quarter, despite part of the hike being passed on to consumers, industry watchers said.
“Last year (in comparable quarter) realisation was on the higher side, and in this quarter there is an input cost pressure,” Rupesh Sankhe, an analyst with Angel Broking told Reuters over the telephone..
The input cost pressure has impacted the sector by around 350 basis points.
This was mainly due to rise in coal and clinker prices (raw material for cement production) and freight charges, he said.
According to a Reuters’ poll of 16 brokerages, India Cements Ltd is expected to post a 50.99% fall in net profit, Shree Cements Ltd a 21.54% drop and Ultratech Cement a fall of 23.52% in Jan-March quarter.
In contrast, most Indian mid-cap firms are likely to post double-digit growth in profits and sales, led by automobile, pharmaceuticals and banks.
A 2% hike in excise duty, Rs50 per tonne cess on coal, hike in petrol and diesel prices and shortage of railway wagons were other factors that pushed up costs for cement firms, brokerage firm ICICI Securities said in its report.
However, part of the cost increase has been passed on to consumers leading to hike in cement prices, it said.
Cement firms will likely report a decline in earnings, as price increases have not been sufficient to offset the higher input costs (principally coal), IIFL said in its report.
Revival on the anvil
The sector is hopeful of a revival from June quarter onwards, as the economy slowly pulls out of the global recession that impacted construction and real estate sectors in the country. Construction and real estate are the two major users of cement.
In January-March, the industry began emerging out of the recessionary trends of 2009, when construction activity was on the lower side, said T Srinivasa Rao, vice president (finance), Rain Commodities , adding a revival was expected from the June quarter.
Analysts agreed that FY11 would be better than FY10, though the sector was unlikely to have a smooth ride.
The September quarter (of FY11) will be bad for the sector, and December quarter “slightly” bad as the sector is expecting a price correction. The input cost pressure would continue, Sankhe said.
“We are expecting almost 10% (price correction) in June, because the peak season will end and supply will get stablized,” he added.