The shares of Madras Cements Ltd had risen by as much as 8% to around Rs96 on Wednesday, soon after its March quarter results were announced. On Thursday, the stock gave up almost all of these gains and settled at around Rs91 on the National Stock Exchange.

While the company’s results were good, they were more or less in line with expectations. Revenue grew by 8.8% year-on-year (y-o-y), despite a 16.6% drop in volumes. Average realizations rose by as much as 30% y-o-y, reflecting the buoyancy in cement prices in southern India.

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Even though demand has been sluggish in the region, prices are at all-time highs due to the so-called production discipline by manufacturers.

Demand in Andhra Pradesh continues to be sluggish, and fell in another key state, Tamil Nadu, in the last quarter owing to state elections. Even so, supply is being managed to ensure cement prices remain high. This is reflected in the company’s results for the March quarter.

On a per tonne basis, earnings before interest, tax, depreciation and amortization (Ebitda) rose by as much as 65% y-o-y. This is despite the fact that volumes fell by almost one-sixth and raw material costs on a per tonne basis rose by 60% y-o-y.

A report by Emkay Global Financial Services Ltd points out, “Costs pressures continued as raw material cost per tonne increased 60% led by increasing fly ash prices, while power and fuel cost jumped 18% as international coal and pet coke prices jumped sharply. However, better realizations helped Madras Cements post an Ebitda per tonne of Rs943 (up 65.4%), in spite of 22% increase in total cost per tonne."

With demand continuing to remain sluggish, analysts at Emkay are factoring in a decline of Rs15-18 per bag in cement prices from their current all-time high levels. In fact, because of the current high prices, some buyers are deferring decisions, leading to a further reduction in demand. The broker has also cut its volume estimates for the current fiscal, which has led to a 3.8% cut in its earnings estimates.

Therefore, like most cement companies, the outlook isn’t all that bright for Madras Cements.

Graphic by Yogesh Kumar/Mint

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