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Southern Cement Makers Likely To Rebound By April

Even a small pick-up in demand will help cement makers in the south, analysts say.

A cement mixer truck operated by Sehring Sand & Kies GmbH & Co. passes a construction site in Frankfurt, Germany. (Photographer: Krisztian Bocsi/Bloomberg)
A cement mixer truck operated by Sehring Sand & Kies GmbH & Co. passes a construction site in Frankfurt, Germany. (Photographer: Krisztian Bocsi/Bloomberg)

The Supreme Court’s stay on a sand mining ban in Tamil Nadu is expected to aid South India-based cement makers’ rebound in the traditionally strong March-April period.

That will come after a weak December quarter for all cement companies, more so for southern players. Demand was muted from both the housing and infrastructure segments amid a severe sand shortage in the south because of the mining ban in Tamil Nadu, said Murtuza Arsiwalla, analyst, institutional equities at Kotak Securities.

Earlier this month, the apex court stayed the Madras High Court’s December order that banned all sand quarries across the state in six months.

Given that no capacity expansion is underway in the south region, a little pick-up in demand would directly benefit cement players in the region as it would increase their utilisation rate, said Hemant Nahata, assistant vice president-research, IIFL Private Wealth. Yet, they will continue to underperform peers from other regions, he said.

The exception is Shree Cement Ltd., which is foraying into the southern market. The Kolkata-based cement maker is expected to commission a 3 million tonnes a year plant in Karnataka in the first quarter of the next financial year, Nahata said.

India Cements Ltd., Ramco Cement Ltd. and Orient Cement Ltd. not only reported a lower volume growth compared with peers from other regions, but their realisations declined and earnings before interest, tax, amortisation and depreciation per tonne contracted more.

India Cements, in its conference call after the third-quarter earnings, suggested that it expects situation to improve in the last quarter of the ongoing financial year that ends in March as sand mines have resumed operations after the Supreme Court’s intervention.

Signs Of Revival

Prices have already started reviving in the region. Just when most of the regions in the country, barring central, reported a decline in the quarter ended December on a sequential basis, prices rose 4.4 percent in the south, according to Kotak Securities’ Dealer Check report.