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Cement
Potential Result Outperformer: Ambuja
Potential Result Underperformer: Shree
Result Expectations – Key Highlights
�� Profits to recover QoQ but stay weak on a YoY basis: For Oct-Dec ‘10,
we estimate sector EBITDA to decline ~29% YoY despite a sharp 59% QoQ
recovery. The YoY decline is expected to be primarily due to lower volumes
and higher operating costs. On a QoQ basis, profit recovery will be led by
improved cement prices. The sector’s overall EBITDA per ton is forecast at
~Rs647/ton, down 29% YoY but up 47% QoQ.
�� Prices up in select regions but volumes take a beating: Cement prices in
Oct-Dec ’10 were up ~5-6% both YoY and QoQ, led primarily by price hikes in
south and west India. Pricing in other regions was flat-to-weak. Firm prices
were mostly accompanied by weak volumes pointing towards rational pricing
by the industry. In 3Q, the industry’s volumes grew ~4% YoY much below the
industry’s long-term growth rate of ~8%. We estimate that volume performance
of cement majors in our coverage universe was worse than industry.
�� Cost pressures continue: Unlike seasonal/QoQ easing in costs that is
usually witnessed in Oct-Dec, we think this time operating cost per ton for the
sector will remain flat QoQ. Low volumes/scale and rising energy prices will
be key pressure points. Imported coal prices are up ~15% QoQ and up
nearly 60% YoY.
�� Ambuja results likely to be better than peers: We highlight Ambuja as a
potential outperformer as we believe its earnings decline on a YoY basis will
be lower than peers. Cost savings and better than industry volume growth
are expected to drive Ambuja’s performance.
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