Increase in demand, capacity addition to boost cement sector

Increase in demand, capacity addition to boost cement sector
Comment E-mail Print Share
First Published: Mon, Apr 12 2010. 12 00 AM IST

Graphic: Ahmed Raza Khan/Mint
Graphic: Ahmed Raza Khan/Mint
Updated: Mon, Apr 12 2010. 12 00 AM IST
The cement industry normally enjoys better volume growth in the fourth quarter as construction activity picks up to meet the deadlines of government infrastructure projects.
Graphic: Ahmed Raza Khan/Mint
On account of increased demand and capacity addition, our cement universe is expected to register a 14% growth in volumes in the fourth quarter of FY10 against the expected all-India average growth of 9.7%. On the revenue front, Sharekhan’s universe is likely to register an 11.6% growth in revenue largely due to strong volume growth and income from the non-cement division in case of Grasim Industries Ltd.
On the other hand, the realization of south-based companies is likely to drop significantly, whereas north-based companies are likely to benefit due to a strong regional demand. However, due to a series of price hikes noticed in the last couple of months, the realization on a sequential basis is about to increase for all cement companies.
Despite a strong cumulative revenue growth of 11.6%, the adjusted profit after tax of the companies is expected to increase marginally by 4.8%. The marginal growth in profit is mainly on account of the contraction in the operating profit margin (OPM). Further, a sharp increase in interest and depreciation charges due to capacity expansion will restrict profit growth during the quarter.
The cement industry witnessed an impressive volume growth in January but posted poor performance in February due to unavailability of labour. Factoring the robust sequential growth for March, we believe the total dispatches for the fourth quarter of FY10 are likely to grow by 9.7% to 43.6 million tonnes (the dispatches data is excluding that of ACC Ltd and Ambuja Cements Ltd due to non-availability of data).
Except the southern region, all other regions are expected to post an impressive volume growth. The central region is likely to register the highest consumption growth of 16.1% in the fourth quarter of FY10 year-on-year (y-o-y). Volume growth in the north and west is also likely to be robust at 12.3% and 9.9%, respectively, on account of higher government spending on infrastructure and the Commonwealth Games 2010.
However, volume growth in the southern region is expected to remain muted at 5.6%. On a sequential basis, the western region is likely to lead in terms of volume growth.
During the quarter, the domestic cement industry witnessed a series of price hikes. Due to the strong cement offtake at the beginning of the quarter, prices increased by about Rs5-7 per bag of 50kg across the country.
Cement prices in Mumbai, Pune and other major cities of Maharashtra increased by Rs10 per bag in March and again by Rs2 per bag from 1 April.
In case of Gujarat, cement prices in the major cities, such as Ahemdabad, Baroda, Bharuch, Mehsana and Surat, increased by Rs5 per bag in March and have increased by Rs10 per bag with effect from 1 April.
feedback@livemint.com
Comment E-mail Print Share
First Published: Mon, Apr 12 2010. 12 00 AM IST