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Business News/ Market / Mark-to-market/  Telangana effect fuels cement sales of south-based firms
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Telangana effect fuels cement sales of south-based firms

India Cements, Ramco Cements have seen decent results in the March quarter on the back of higher cement demand

The cement sector’s outlook is likely to improve in the months following the monsoon. Photo: BloombergPremium
The cement sector’s outlook is likely to improve in the months following the monsoon. Photo: Bloomberg

For the March quarter, south-based cement maker India Cements Ltd put up a decent show on the back of higher demand. Noticeably, it toed the line of its counterpart, Ramco Cements Ltd, whose results came in a week ago.

Robust demand from the Telangana region was the sweet spot in the performance of both firms. New road and irrigation projects, and planned housing for weaker sections of society should push up cement demand and eventually prices. Analysts believe that it could make up for five years of subdued growth in the south, partly precipitated by surplus capacity.

In fact, it already has. India Cements sold 18% more cement in the quarter under consideration when compared with a year ago. Ramco sold 12% more. Better still, both firms’ sales shot up by about 28% when compared with the December quarter. This may be on a low base, which was largely a manifestation of the deluge in the south last December.

That said, the deluge softened cement prices, dragging down realizations for both firms. Therefore, net revenue of India Cements and Ramco grew only marginally, although they bettered forecasts on the Street.

Meanwhile, the southern firms have cashed in on the benefits of captive power generation over the last few years, through both thermal and renewable energy routes.

Operating margin gains are, therefore, significant when the benefits of economies of scale kick in with higher volumes. Ramco’s operating margin is commendable at 31%, among the highest in the industry. A high degree of captive power consumption and cost control explains this.

The Ramco stock, a steady outperformer on bourses compared with its benchmark indices, has delivered higher returns than its peers and even compared with pan-India companies like UltraTech Cement Ltd, over a one-year horizon.

The cement sector’s outlook is likely to improve in the months following the monsoon.

India Cements’ statement echoes this, saying that the next triggers for outperformance will come from macroeconomic factors like the Seventh Pay Commission and economic recovery, as these will directly lift demand for cement and its price.

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Published: 27 May 2016, 07:45 AM IST
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