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Discipline To Boost Profitability
Post the monsoon season, cement demand expectedly picked up in Q3FY12 with increase in construction
activity. Volumes for the industry are expected to grow ~10% sequentially during the quarter. However, on a
YoY basis the growth in cement demand is still in single digits except for the month of Nov’11. The low base of
last year enabled the industry post a double digit growth in Nov’11. Production discipline helped industry
realisations to remain firm. This is quite evident from the fact that despite the seasonally weak quarter for the
Southern region, prices have largely remained steady. Meanwhile prices in other regions especially Northern
region recovered post the monsoon season. The industry has been impacted by the steady rise in domestic
coal prices during the year. While prices of international coal cooled off marginally the sharp depreciation of
the Indian currency has negated that benefit. We expect a 3-4% QoQ increase in power and fuel cost per mt for
companies under coverage. Similarly, freight cost during the quarter is expected to rise 2-3% QoQ. Despite the
increase in costs, the growth in realisations would enable manufacturers to expand margins. We expect margins
in our coverage universe to expand 320bps QoQ thus leading to a 26% increase in EBITDA per mt to Rs870.
ACC
ACC dispatches for Q4CY11 were up by a moderate 5.6% YoY and 5.0% QoQ to
5.89mn MT. The low base and new capacity addition had helped the company post
double digit volume growth in 9MCY11. However with an increase in base, growth rate
during the quarter slowed down.
Realisation for the quarter is expected to grow by 6% QoQ to Rs4k/mt as we believe
company to benefit from the significant price hikes taken in Northern and Central
regions post the monsoon season.
We expect power & fuel cost to be higher by 2.5% QoQ as the company largely
sources its coal requirements through linkages and e-auctions. Freight expenses per
mt are expected to increase by 2% QoQ. We expect EBITDA margins to expand
500bps sequentially to 16.8% (EBITDA/mt of Rs703) primarily benefiting from higher
realisations.
Net Profit is expected to decline 10.9% YoY to Rs2.3bn.
Ambuja Cements (ACEM)
Ambuja Cements (ACEM) reported a double digit volume growth during the quarter as
the company benefited from commissioning of new capacity. ACEM dispatches for
Q4CY11 were up 11% YoY (16.5% QoQ) to 5.54mn MT. Capacity utilisation of the
company also improved to 81.3%.
We expect realisations for the company to grow 8% QoQ to Rs4.1k/mt as it is likely
to be a beneficiary of price increase in Northern region.
Higher cement realisations are expected to off-set any increase in coal cost and freight
expense. We expect EBITDA margins for the period to expand 357bps sequentially to
21%.
Depreciation charges are expected to increase by 11% YoY to Rs1.2bn. We expect
net profit for the company to grow 9.2% YoY to Rs2.8bn.
India Cements (ICEM)
India Cements (ICEM) is expected to report a moderate volume growth of 5.2% YoY.
On a sequential basis volumes are expected to decline 7.9% as the current quarter is
seasonally weak due to monsoons on the East coast.
Cement realisations are expected to improve by a modest 2.5% QoQ to Rs4.4k/mt as
prices in south have remained largely flattish during the quarter due to seasonality.
Net revenues are expected to increase 29.5% YoY to Rs10.1bn, including Rs300mn
IPL revenues.
We expect a 4.5% QoQ increase in power and fuel cost as the company is largely
dependent on imported coal and would be affected by the depreciating currency.
Additionally with increase in freight cost we expect EBITDA margin to contract 298bps
QoQ to 20.3%. Benefits of the newly commissioned 50MW power project in Tamil
Nadu are expected to accrue from Q4FY12.
Net profit for the quarter is expected to rise 176% YoY to Rs593mn.
Shree Cement (SRCM)
On a low base of Q3FY11, Shree Cement’s (SRCM) cement dispatches are expected
to grow 18.7% YoY to 3.16mn mt. The company has also benefited from the
commissioning of a 1.5mn mt grinding facility in Rajasthan.
With price recovery in northern region post monsoons, we expect realisations to grow
by 4.5% QoQ to Rs3.6k/mt.
The Power business is expected to contribute Rs1.9bn in revenues as the company
has contracted to sell 225MW of power starting Oct'11.
Company remains unscathed from the rising coal concerns as it is largely dependent
on pet coke for its fuel requirements. We expect EBITDA margins to expand 466bps
YoY (75bps QoQ) to 24.2%.
Post depreciation charges of Rs1.75bn, net profit for Q3FY12 is expected to grow
264% to Rs1bn.
UltraTech (UTCEM)
UltraTech cement (UTCEM) dispatches for Q3FY12 are expected to grow at a moderate
1.6% YoY. However, on a QoQ basis volumes are expected to rise 10.2% with the
seasonal improvement in demand. Capacity utilisation also improved sequentially
810bps to 81% for the quarter.
With improved market conditions especially in the Northern region, blended realisations
are expected to improve 3.5% QoQ to Rs4.4k/mt.
We expect a 3% sequential increase in power and fuel as well as freight costs. However,
with improved realisations EBITDA margins are expected to expand 390bps QoQ to
20.3% (EBITDA/mt of Rs906).
Reported net profit for the company is expected to grow 43.5% YoY to Rs4.6bn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Discipline To Boost Profitability
Post the monsoon season, cement demand expectedly picked up in Q3FY12 with increase in construction
activity. Volumes for the industry are expected to grow ~10% sequentially during the quarter. However, on a
YoY basis the growth in cement demand is still in single digits except for the month of Nov’11. The low base of
last year enabled the industry post a double digit growth in Nov’11. Production discipline helped industry
realisations to remain firm. This is quite evident from the fact that despite the seasonally weak quarter for the
Southern region, prices have largely remained steady. Meanwhile prices in other regions especially Northern
region recovered post the monsoon season. The industry has been impacted by the steady rise in domestic
coal prices during the year. While prices of international coal cooled off marginally the sharp depreciation of
the Indian currency has negated that benefit. We expect a 3-4% QoQ increase in power and fuel cost per mt for
companies under coverage. Similarly, freight cost during the quarter is expected to rise 2-3% QoQ. Despite the
increase in costs, the growth in realisations would enable manufacturers to expand margins. We expect margins
in our coverage universe to expand 320bps QoQ thus leading to a 26% increase in EBITDA per mt to Rs870.
ACC
ACC dispatches for Q4CY11 were up by a moderate 5.6% YoY and 5.0% QoQ to
5.89mn MT. The low base and new capacity addition had helped the company post
double digit volume growth in 9MCY11. However with an increase in base, growth rate
during the quarter slowed down.
Realisation for the quarter is expected to grow by 6% QoQ to Rs4k/mt as we believe
company to benefit from the significant price hikes taken in Northern and Central
regions post the monsoon season.
We expect power & fuel cost to be higher by 2.5% QoQ as the company largely
sources its coal requirements through linkages and e-auctions. Freight expenses per
mt are expected to increase by 2% QoQ. We expect EBITDA margins to expand
500bps sequentially to 16.8% (EBITDA/mt of Rs703) primarily benefiting from higher
realisations.
Net Profit is expected to decline 10.9% YoY to Rs2.3bn.
Ambuja Cements (ACEM)
Ambuja Cements (ACEM) reported a double digit volume growth during the quarter as
the company benefited from commissioning of new capacity. ACEM dispatches for
Q4CY11 were up 11% YoY (16.5% QoQ) to 5.54mn MT. Capacity utilisation of the
company also improved to 81.3%.
We expect realisations for the company to grow 8% QoQ to Rs4.1k/mt as it is likely
to be a beneficiary of price increase in Northern region.
Higher cement realisations are expected to off-set any increase in coal cost and freight
expense. We expect EBITDA margins for the period to expand 357bps sequentially to
21%.
Depreciation charges are expected to increase by 11% YoY to Rs1.2bn. We expect
net profit for the company to grow 9.2% YoY to Rs2.8bn.
India Cements (ICEM)
India Cements (ICEM) is expected to report a moderate volume growth of 5.2% YoY.
On a sequential basis volumes are expected to decline 7.9% as the current quarter is
seasonally weak due to monsoons on the East coast.
Cement realisations are expected to improve by a modest 2.5% QoQ to Rs4.4k/mt as
prices in south have remained largely flattish during the quarter due to seasonality.
Net revenues are expected to increase 29.5% YoY to Rs10.1bn, including Rs300mn
IPL revenues.
We expect a 4.5% QoQ increase in power and fuel cost as the company is largely
dependent on imported coal and would be affected by the depreciating currency.
Additionally with increase in freight cost we expect EBITDA margin to contract 298bps
QoQ to 20.3%. Benefits of the newly commissioned 50MW power project in Tamil
Nadu are expected to accrue from Q4FY12.
Net profit for the quarter is expected to rise 176% YoY to Rs593mn.
Shree Cement (SRCM)
On a low base of Q3FY11, Shree Cement’s (SRCM) cement dispatches are expected
to grow 18.7% YoY to 3.16mn mt. The company has also benefited from the
commissioning of a 1.5mn mt grinding facility in Rajasthan.
With price recovery in northern region post monsoons, we expect realisations to grow
by 4.5% QoQ to Rs3.6k/mt.
The Power business is expected to contribute Rs1.9bn in revenues as the company
has contracted to sell 225MW of power starting Oct'11.
Company remains unscathed from the rising coal concerns as it is largely dependent
on pet coke for its fuel requirements. We expect EBITDA margins to expand 466bps
YoY (75bps QoQ) to 24.2%.
Post depreciation charges of Rs1.75bn, net profit for Q3FY12 is expected to grow
264% to Rs1bn.
UltraTech (UTCEM)
UltraTech cement (UTCEM) dispatches for Q3FY12 are expected to grow at a moderate
1.6% YoY. However, on a QoQ basis volumes are expected to rise 10.2% with the
seasonal improvement in demand. Capacity utilisation also improved sequentially
810bps to 81% for the quarter.
With improved market conditions especially in the Northern region, blended realisations
are expected to improve 3.5% QoQ to Rs4.4k/mt.
We expect a 3% sequential increase in power and fuel as well as freight costs. However,
with improved realisations EBITDA margins are expected to expand 390bps QoQ to
20.3% (EBITDA/mt of Rs906).
Reported net profit for the company is expected to grow 43.5% YoY to Rs4.6bn.
When a construction goes up starting this requires best quality cement, So this might be the reason that Cement factories are going increment day by day.
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