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India Cement Sector
1Q FY12 results preview: profitability to decline on qoq basis
1Q FY12 preview – profitability to decline on qoq basis
Even though the price of cement has fallen significantly from its peak, on qoq basis
average realisation is likely to remain flat
In the first two months of FY12, volume growth has been flat yoy
Because of the increase in coal prices, we expect power and fuel cost to decrease.
Hence, on qoq basis, we expect a decline in profitability.
Realisation flat qoq
Realisation has softened significantly from its peak in all regions but the south. Despite the
weakness in prices, however, average cement realisation growth for 1Q FY11 is likely to be flat
this quarter compared with 4Q FY11 (
The price of cement peaked in Mar-Apr ’11. After that, prices have softened quite a bit, primarily
in the western region. We thus don’t expect much movement in realisation for pan-India players.
Nevertheless, local players might see some movement in realisation.
The southern region has witnessed significant volume declines. Andhra Pradesh, on account of
political instability, is not seeing any uptick in construction/infrastructure activity. Consequently,
cement consumption, which declined ~15% in FY11, is likely to remain on its negative path.
Other than ACC, whose volume grew because of the recent commissioning of its Wadi plant, we
don’t expect other cement companies to report significant volume growth yoy.
Power and fuel cost to increase
Coal India increased the price of coal by 30% in Mar ’11. The effect of this increase is likely to
affect power and fuel costs in the quarter. However, imported thermal coal prices have not moved
much. Thus, companies that depend heavily on imported coal will not be affected much.
VSF realisation and volume likely to be lower qoq
Given the shutdown of the Nagda plant in June due to shortage of water, we expect volume to
drop qoq. Moreover, weakening cotton prices, a competing fibre to VSF (viscose staple fibre), is
likely to soften VSF prices in the quarter.
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