A worker carries a sack of cement from a truck in a warehouse (Photographer: Udit Kulshrestha/Bloomberg)

Cement Firms Seen Reporting Strong Profit Growth In The September Quarter

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The September quarter is expected to an upbeat one for cement companies, which are likely to report strong growth in profits even as volume growth remains subdued.

Firm cement prices along with low fuel costs could help these companies in a quarter when volume growth is typically weak due to the monsoons which impact construction activity. While average cement prices may remain flat sequentially across most regions, prices in the Southern region are likely to rise 4-5 percent.

The top eight cement companies are expected to report 23.28 percent growth in revenue for the September-ended quarter compared to the corresponding quarter last year, according to Bloomberg consensus estimates. EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) may grow 54.33 percent on a year-on-year basis while net profit is expected to rise 66.02 percent compared to last year.

A Quarter Of Subdued Volume Growth?

Volume growth for most cement companies is likely to remain subdued as a heavy monsoon has impacted construction activity.

Volumes across the industry are expected to grow 3 percent on a year-on-year basis and fall 10 percent on a quarter-on-quarter basis. However, companies like Shree Cement Ltd. and Orient Cement Ltd., could buck the trend and clock double digit growth due to expanded capacities.

Healthy EBITDA Growth To Continue?

Higher realizations and lower fuel cost due to the falling pet coke prices are expected to continue to fuel EBITDA growth for cement companies. The top eight companies are expected to report 54.33 percent year-on-year growth, with UltraTech Cement Ltd. leading the way with a 54.51 percent increase. India Cements Ltd. is likely to be the worst performer with a 11.7 percent drop.

Improved Profitability Around The Corner?

Profitability of the top eight cement companies is expected to improve on a year-on-year basis due to improved realisations and the benefits accruing from lower power and fuel costs.

The improvement in profitability may be more pronounced for players in North India, including Shree Cement and JK Lakshmi Cement as cement prices have been higher in that region and these companies have a better fuel mix.

Shree Cement is expected to report an over two-fold jump in second quarter net profit while JK Lakshmi Cement is expected to report a profit compared to a loss in the corresponding quarter last year, according to Bloomberg consensus.

Going forward, a strong monsoon and the prospect of improved rural income growth could boost rural cement demand. Demand may also pick up if the government steps up infrastructure spending and construction activity in the rural housing segment revives post the monsoon.

First Off The Block

UltraTech Cement Ltd. will kick start the earnings season for the cement sector, by coming out with its second quarter earnings tomorrow. Net profit is expected to come in at Rs 550.90 crore according to a Bloomberg estimate, which is a growth of 39.88 percent over the same period last year. It does represent a dip on a quarter-on-quarter (QoQ) basis though. The net sales figure is also expected to dip marginally on a QoQ basis to come in at 5,587.9 crore. Earnings before interest, tax, depreciation and amortisation (EBITDA) is likely to fall by 20.82 percent versus the last quarter but rise by 13.88% on an year-on-year basis come in at Rs 1126.37 crore.

Investors will also be keeping a very close watch out for the management's commentary on the progress made on UltraTech's latest buy, 6 cement assets from the Jaypee Group.

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