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Higher prices to cement earnings
Favourable margin scenario to drive earnings
We expect most cement players to report QoQ and YoY improvement
in profits from an increase in cement prices, higher volume and
positive impact of operating leverage. Improvement in profitability is
expected to be much higher for players having presence in northern
region (viz Shree Cement) and Gujarat (viz: JK Lakshmi) due to
significant increase in cement prices and strong demand in these
regions. Players in the South (viz: Orient Paper & India Cement) are
likely to report modest improvement in earnings due to weak demand
and stable prices.
Q3 volume likely to be up by ~10% YoY
In Q3FY12, cement industry is expected to report growth in volumes
of 10% YoY. Even on sequential basis cement volumes are likely to
grow by ~9%. Improvement in demand is also attributed to high
spending by the state government (such as UP and Gujarat) prior to
election and strong rural demand.
Cement prices up ~13.1% YoY
All India average cement prices are expected to improve 13.1% YoY
due to series of price hikes taken by cement players during Oct-
Nov’11. On QoQ basis we expect cement realisations to improve by
~9% from sharp increase in prices in northern, eastern and central
regions.
Cost like to show mix trend
We expect players dependent on petcoke (viz Shree Cement, JK
Cement, JK Lakshmi) to report decline in power& fuel cost due to
softening in petcoke prices on account of slowdown in Europe.
However, players dependent on domestic coal are likely to report
increase in power& fuel cost due to lower availability of linkage coal
and increase in e-auction prices.
Net profit to surge
Increase in revenue and margins of our coverage universe is expected
to translate into ~64.5% QoQ and 44.4% YoY growth in profits.
Outlook & Recommendations
All-India average cement prices have moved up by 13%
YoY from a series of price hikes administered by players
post monsoon. With industry entering into busy season,
dispatches are also likely to improve. Softening in
petcoke prices is also likely to reduce cost pressures for
certain cement players. All these factors are expected to
boost cement players’ earnings. However given the
sharp run up in some of the frontline cement stocks we
remain optimistic on selective stocks. We like Grasim in
large cap, Shree Cement in mid cap and JK Cement & JK
Lakshmi in small cap due to their attractive valuations,
cost competency and healthy balance sheets
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Higher prices to cement earnings
Favourable margin scenario to drive earnings
We expect most cement players to report QoQ and YoY improvement
in profits from an increase in cement prices, higher volume and
positive impact of operating leverage. Improvement in profitability is
expected to be much higher for players having presence in northern
region (viz Shree Cement) and Gujarat (viz: JK Lakshmi) due to
significant increase in cement prices and strong demand in these
regions. Players in the South (viz: Orient Paper & India Cement) are
likely to report modest improvement in earnings due to weak demand
and stable prices.
Q3 volume likely to be up by ~10% YoY
In Q3FY12, cement industry is expected to report growth in volumes
of 10% YoY. Even on sequential basis cement volumes are likely to
grow by ~9%. Improvement in demand is also attributed to high
spending by the state government (such as UP and Gujarat) prior to
election and strong rural demand.
Cement prices up ~13.1% YoY
All India average cement prices are expected to improve 13.1% YoY
due to series of price hikes taken by cement players during Oct-
Nov’11. On QoQ basis we expect cement realisations to improve by
~9% from sharp increase in prices in northern, eastern and central
regions.
Cost like to show mix trend
We expect players dependent on petcoke (viz Shree Cement, JK
Cement, JK Lakshmi) to report decline in power& fuel cost due to
softening in petcoke prices on account of slowdown in Europe.
However, players dependent on domestic coal are likely to report
increase in power& fuel cost due to lower availability of linkage coal
and increase in e-auction prices.
Net profit to surge
Increase in revenue and margins of our coverage universe is expected
to translate into ~64.5% QoQ and 44.4% YoY growth in profits.
Outlook & Recommendations
All-India average cement prices have moved up by 13%
YoY from a series of price hikes administered by players
post monsoon. With industry entering into busy season,
dispatches are also likely to improve. Softening in
petcoke prices is also likely to reduce cost pressures for
certain cement players. All these factors are expected to
boost cement players’ earnings. However given the
sharp run up in some of the frontline cement stocks we
remain optimistic on selective stocks. We like Grasim in
large cap, Shree Cement in mid cap and JK Cement & JK
Lakshmi in small cap due to their attractive valuations,
cost competency and healthy balance sheets
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