Cement firms likely to see 30% fall in profit

Tags: Companies

Lower sales, rise in input costs to bog down sector

Cement companies are expected to report sharp decline in profit margins year-on-year due to lower volume and increase in input costs that they failed to pass on to customers due to subdued demand. Net profits are expected to fall by 35-40 per cent while margins may decline by 20 per cent on an average, according to estimates of three brokerages.

“We expect most cement firms to report a year-on-year decline in profit, due to an increase in cost, lower volume, the negative impact of operating leverage and lower price increases compared to a year ago,” said Ravi Sodah, an analyst at Elara Capital.

Due to cost pressures and subdued volume, cement companies are expected to witness steep decline in margins. Freight cost of cement firms in the quarter is expected to rise due to an increase in diesel prices and revision in railway freights.

Ebitda of ACC is expected to decline by 41.6 per cent from a year ago to Rs 185.2 crore, Ambuja’s Ebitda is expected to decline by 50.2 per cent from a year ago to Rs 214.0 crore and UltraTech Cement’s Ebitda is expected to decline by 20.2 per cent from a year ago to Rs 817.1 crore, according to a report by Elara Capital.

In October-December, 2013, the cement industry is expected to report flattish YoY growth in volume on account of subdued demand in October and November. However, on a sequential basis, cement volume is likely to increase by six per cent, due to seasonality. Sluggish demand is due to low spending by the government on infrastructure and the slowdown in the economy, said Sodah.

Cement demand continued to remain sluggish in October-December, 2013, with a weak October followed by a relatively better November and again subdued December. Adverse impact in the quarter continued in housing and infrastructure, coupled with sand mining issues, delayed crop selling and political-economic uncertainties.

“Capacity utilisation of the industry is expected to remain at 69 per cent, which is the lowest third quarter capacity utilisation in a decade, said the report,” Jinesh Gandhi, analyst at Motilal Oswal said.

Weak demand and aggressive stance by tier II players resulted in rollback of couple of price increase attempts in September end and in mid-November, Gandhi said.

“The industry has been facing a glut scenario where excess cement capacity is around 100 million tonnes, aggressive efforts need to be undertaken to catalyse in the resurgence of the industry,” said OP Puranmalka, whole-time director at UltraTech Cement, said.

“Construction of cement concrete roads in the country on a large-scale would not only generate more cement demand but would also help in reviving the sagging economy considerably moreover ensuring durability for a longer period,” Shailendra Chouksey, whole-time director, J K Lakshmi Cement said.

jharnamazumdar@mydigitalfc.com

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