Strong prices across regions help margins

Cement companies have maintained robust growth in the first quarter of FY2012-13 on account of strong price realisations. Volume growth was close to 10 per cent, but due to strong cement prices across regions, vale of sales rose by 19 per cent. Average realisations increased by 10-15 per cent, but rise in freight and fuel costs largely offset the higher realisations. The cost of raw materials moved at a higher pace of 19.5 per cent and that impacted the operating margin, which grew at 14 per cent.

The operating margins on cement sales of 17 cement makers rose to 21.6 per cent, a 77 basis points (bps) rise over the sequential quarter. The rise in margins were attributed to price improvement which was driven by seasonality, softening imported coal prices and improvement in operating leverage. Net profit increased 21 per cent on account of strong performance by midsized cement firms and moderation in depreciation provisioning by ACC, compared to the March quarter.

Indian cement companies import coal primarily from Indonesia and South Africa. Softening international prices are likely to benefit companies with higher dependence on imported coal. Analysts expect potential earnings upgrade of 18-25 per cent for India Cements and Shree Cement over FY13/14. The moderating imported coal prices will impact the prices of pet coke, but for cement companies which have an inventory of 40-50 days, the benefit of decline in coal prices would come in phases and fully from the second quarter of FY13.

In the April-June quarter, the rate of sales growth was higher, 25 per cent plus for Century Textiles, Heidelberg Cement, JK Lakshmi Cement, Madras Cement and Shri Digvijay Cement. ACC and Ambuja Cement, Grasim, JP Associates and UltraTech Cement have nearly maintained the industry growth rate. Operating margins improved smartly for Century Textiles, Heidelberg Cement and Shri Digvijay Cement, while Grasim, JP Associates and UltraTech reported single digit growth in operating margin on account of higher input costs.

Ambuja Cement’s volumes grew 6.4 per cent while average realisation improved 11 per cent, primarily due to rise in prices in its eastern markets. Strong realisation growth saw improvement in margins by 114 bps to 28.64 per cent and earnings before interest, depreciation, taxes and amortisation (Ebitda) per tonne to Rs 1,283 against Rs 1,106 a year ago.

The company expects profit margins to remain under pressure due to a steep rise in costs, driven by higher raw material prices and rise in distribution and freight costs.

ACC posted slower growth in sales (up 15.8 per cent) compared to the other major cement players on account of weak volume growth. Operating margin was up 45 bps as it was unable to offset the increase in freight and fixed costs. Despite cost push, Ebitda/tonne improved by Rs 180/tonne QoQ to Rs 1,076. Net profit rose by 27 per cent on account of moderation in provision for depreciation.

Madras Cements reported strong revenue growth for the fourth consecutive quarter in a row. Energy cost remained under check as the company has locked its pet coke requirement for five to six months at the lower prices prevailing in the fourth quarter. With the commissioning of the 45-Mw captive power plant, the company will be able to de-link itself from the expensive grid power in Tamil Nadu.

POWER PLAY Quarterly performance of cement makers
	Growth in sales for quater ended				Operating margins for quarter ended
	11-Sep	11-Dec	12-Mar	12-Jun	11-Sep	11-Dec	12-Mar	12-Jun
ACC	30.84	27.72	21.34	15.83	8.72	12.08	17.82	19.52
Ambuja Cement	15.41	30.63	19.02	17.90	17.69	18.21	29.10	28.64
Birla Corp	5.10	10.06	13.34	26.20	0.57	7.62	8.38	16.63
Grasim	28.14	21.37	19.24	16.86	10.07	17.08	19.08	20.20
Heidelberg Cement	46.99	25.91	74.01	32.99	10.73	11.72	14.65	6.78
JK Cements	21.75	29.94	20.98	21.50	12.88	19.95	24.19	21.53
JK Lakshmi Cement	33.15	39.16	27.77	36.14	15.14	24.99	27.90	23.73
JP Associates	9.56	11.40	7.54	21.81	-2.23	14.92	12.61	14.50
Madras Cement	33.66	29.42	32.81	29.54	25.14	24.20	25.76	24.33
Mangalam Cement	7.70	57.00	49.70	50.20	6.69	22.98	15.68	21.85
Prism Cement	60.70	85.12	52.52	29.32	-22.90	13.26	10.98	11.12
Sh. Digvijay Cement	35.33	9.82	10.70	35.48	-18.65	3.89	15.26	11.52
UltraTech Cement	21.62	22.96	18.85	16.44	16.69	21.35	24.72	25.69
Total 17 Companies	23.38	25.27	19.91	19.14	11.06	17.69	20.81	21.58
Compiled by BS Research Bureau                                                                                                          (Figures in %)

JP Associates has reported a strong 21 per cent rise in cement sales on the back of commissioning of new capacities as well as entry into newer markets. UltraTech Cement’s strong profitability growth was driven by higher realisations and stability in operating costs. Power & fuel costs moderated by 100 bps quarter-on-quarter on softening imported coal prices.