Cement companies may post better Q4 digits as price, demand rise

MUMBAI: A slight pick up in demand and sustained increase in prices across most regions in the country will prove to be a face-saver for cement companies for the last quarter of an otherwise terribly tough year.

Cement companies kick off their earnings with UltraTech Cement on Wednesday and ACC and Ambuja Cements on Thursday.

These companies, along with their peers, saw profits come under pressure with risings costs and weak demand in last several quarters.

But slight improvement in prices and demand could give a ray of hope in the last quarter of this year.

These companies are expected to perform better in the fourth quarter against the third quarter.

“After three quarters of extremely poor financial performance, fourth quarter will likely be a relatively better quarter for cement companies,” Nitin Bhasin, analyst at Ambit Capital wrote in a report.

Bhasin expects earnings before interest, tax, depreciation and amortization (EBITDA) per tonne to grow 30-60% in the quarter from third quarter.

Prices in the central and northern region increased 7-8% during the fourth quarter from the third quarter, according to Prabhudas Lilladher analyst Kamlesh Bagmar.

Prices firmed up 1-2% in eastern and western part of India.

Closure of Binani Cement’s plant, which produces about 10% of north’s total production, reduced supply of cement. Pick up in demand, helped by execution of certain infrastructure projects in North and West India also helped push up prices.

But South India continued to suffer from oversupply and saw no improvement in demand. Prices fell about 10% in south India.

“This quarter the companies will do sequentially better as realizations have improved. There was a pick up in demand in most regions except south,” said Angel Broking analyst V.Srinivasan.

The hike in prices will help companies based in North and Western regions like Shree Cement, JK Lakshmi Cement, JK Cement and pan-India companies like Ambuja and UltraTech Cement, according to broking house Centrum. However, on the year over year basis, most of the companies will continue witness a dip in profits as diesel price hikes increase road transportation costs.

Falling coal prices will help contain power and fuel costs during the quarter.

Analysts warn that prices could fall back to what they were earlier once production at Binani’s cement plant resumes.

“Cement companies’ earnings were revised downwards sharply in fiscal 2014 and we expect the same scenario in fiscal 2015 if demand does not improve. We prefer to wait for signs of demand revival and pricing stability before turning positive on the sector,” said Centrum analyst Sanjeev Kumar Singh.