 "Rail freight hike may impact margins for cement players: report")
According to the agency, in such a situation, cement manufacturers would be unable to pass on the rail freight cost hike and their operating margins may reduce by 75 bps-100 bps. The cement manufacturers of South India will be particularly affected, given the unfavorable demand-supply situation may not be in a position to pass on the increased cost.
“However, cement players based in the rest of India would be able to pass on a significant portion of the cost increase. The railway freight hike may potentially increase the cement price by Rs 2 to Rs 4 per bag,” said India Ratings in its report.
As per the rating agency, around 50-60% of the freight expense of a typical cement company is related rail freight. This is essentially 15-18% of total costs. Around 10.50-11% of rail freight (by volume) is attributable to the cement industry. This is second only to coal which accounts for 45-47 percent of the rail freight.
India Ratings has revised its outlook for the Indian cement manufacturers to stable to negative for 2013 from negative in 2012. Limited downside risk for demand is the key driver for the outlook improvement. India Ratings expects EBITDA margins for integrated players (essentially the top five companies) for FY13 to be in the range of 23-24%, in line with FY12 margins. These companies are expected to maintain stable credit profile.
However, margins of smaller players are expected to be in the range of 17-19%, lower than median margins of 21 percent in FY12. The credit profile of such small non-integrated players may experience some pressure.