Delay in economic recovery dents performance of cement firms

Low sales volume, led by delay in economic recovery, affected the performance of cement companies in the January-March period of FY15. For the quarter ended March 2015, overall net profit and net sales of cement companies plunged around 45 per cent and 2.5 per cent, respectively, against the corresponding quarter a year ago.

On a year-to-date basis till June 3, the share price of cement companies such as Gujarat Sidhee Cement, Udaipur Cement Works, Andhra Cements and Saurashtra Cement plunged 36.4 per cent, 35.3 per cent, 33.12 per cent and 26.99 per cent to Rs 20, Rs 11.64, Rs 7.63 and Rs 37.05, respectively.

However, the share price of cement majors on the basis of market capitalisation such as Ultratech Cement, Shree Cement and ACC jumped 6.19 per cent, 16.20 per cent and 4.15 per cent to Rs 2830.20, 10883.80 and 1461.65, respectively, during the same period.

According to a research report by Reliance Securities, weak sales volume affected cement companies during Jan-March 2015.
Barring Shree Cement, JK Cement and Mangalam Cement, all cement companies have reported a volume de-growth in the range of 5-21 per cent year-on-year (yoy). South-based companies such as  Ramco Cements (down 17 per cent yoy) and India Cements (down 21 per cent yoy) witnessed a sharp decline in volume owing to bleak demand scenario.

"Skewed volume has affected the absolute performance of companies. We foresee that demand scenario is unlikely to improve in current quarter and visible pickup can be perceived only post monsoon," Reliance Securities said in a research report.

Except North-based cement companies, others have witnessed an EBIDTA/tonne recovery of Rs 150-900 per tonne in the last quarter of previous financial year.

North region-based cement companies reported weak operating profit figures in the last quarter of 2014-15.  Operating profit of Ambuja Cement, Shree Cement and JK Lakshmi Cement declined 15.85 per cent, 18.65 per cent and 34.65 per cent, respectively, yoy to Rs 605.05 crore, Rs 391.02 crore and 89.24 crore, respectively.

However, Ramco Cement and India Cements reported operating profit of Rs 276.50 crore (up 156 per cent) and Rs 200.23 crore (up 68.52 per cent) against Rs 156.09 crore and Rs 68.52 crore during the same quarters.

According to the brokerage house, tepid realisations in Northern region have impacted the operating performance of companies having presence in the region, whereas Southern companies like Ramco Cement and India Cements reported strong operating performance. Further, rise in limestone royalty and railway freight hike negated the effect of cut in fuel price.

If you are looking for some investment opportunities in the sector, Reliance Securities suggests Ultratech Cement in large-cap and Ramco Cements, JK Cement, JK Lakshmi Cement and Mangalam Cement in the mid-cap space.