| Summary of Contents
| SHAREKHAN SPECIAL Q4FY2012 Cement earnings review The earnings of the domestic cement players in Q4FY2012 were largely ahead of the street's estimates. The companies with larger exposure to south India saw their bottom lines improve significantly as their realisation surged due to a supply discipline followed by the manufacturers in the region. On the other hand cement offtake, which was sluggish during M9FY2012, showed signs of revival during the quarter. Hence the impact of cost pressure during Q4FY2012 got partially offset by healthy realisations for most of the companies. Consequently we have marginally upgraded our earnings estimates for most of the cement companies under our coverage to factor in the better than expected cement realisations and improvement in cement offtake. Going ahead, with the price hike undertaken in the month of April 2012, we expect companies to post better profitability and earnings in the coming quarter. Our top pick in the sector is Grasim Industries in the large size space on account of its strong balance sheet, diversified business model and attractive valuation. In the mid size space we prefer Orient Paper & Industries (Orient Paper) due to its attractive valuation and value unlocking accruing through the de-merger of its cement business. Key points -
Cumulative revenue grew by 14.7%: In the quarter under review, the cumulative revenues of the cement companies under Sharekhan's universe grew by 14.7% year on year (YoY) to Rs20,916.9 crore. The revenue growth was supported by realisations which grew 11.4% YoY and by a volume growth of 9.6% YoY. Among the companies in the Sharekhan cement universe, Shree Cement, Madras Cements and Orient Paper have posted revenue growth in the range of 23% to 38% whereas the revenue of other companies grew in the range of 10-18%. The large players like ACC and Ambuja Cements posted an impressive revenue growth of around 20%. -
Mixed volume growth of cement universe; Shree Cement takes the lead: The cement companies under our coverage posted a mixed volume growth during the quarter. Shree Cement reported a volume growth of 20.5% due to stabilisation of its new capacity and better demand environment in the northern region. On the other hand Madras Cements and Orient Paper also posted impressive volume growth in the range of 11-13%. UltraTech and India Cements posted a volume growth of 2-8%. Among the large players operating on a pan India basis, ACC and Ambuja Cements posted volume growth in the range of 7-9%. -
Cumulative realisation increased by 11.4%, supported by supply discipline: The cumulative realisation of the cement makers under our coverage increased by 11.4% YoY during the quarter. The cumulative growth in realisation was supported by the supply discipline mechanism followed by the cement players. Among the companies in our Sharekhan cement universe the average realisation of south India based companies like Madras Cements, Orient Paper and India Cements increased in the range of 11-18% on a Y-o-Y basis whereas the average realisation of other players increased by 4-10%. Further, the cement price has increased by Rs10-12/bag during the month of April 2012 which will reflect in the coming quarters. -
Cost pressure partially offset by surge in realisation; margins contract: On the operating profit margin (OPM) front, the cumulative OPM of the cement companies under our coverage contracted by 36 basis points to 22.5% during the quarter under review on account of cost pressure in terms of surge in the power & fuel cost (due to increase in coal price on a Y-o-Y basis) and higher freight cost (due to increase in lead distance). Grasim, Madras Cements and Shree Cement reported relatively higher margin pressure, whereas companies like India Cements and UltraTech displayed expansion in their margin on the back of surge in the realisation which offset the cost pressure. However, in the coming quarters we expect the margin to improve sequentially due to the recent increase in the price of cement. -
Earnings improve by 8% due to revenue growth: A better than expected revenue growth (supported by growth in realisation as well as volume) has resulted in a better than expected earnings growth during the quarter. Further, an impressive performance by the non-cement division of Jaiprakash Associates also supported the overall earnings growth. On a cumulative basis the Sharekhan cement universe has registered an 8% growth at the adjusted net profit level. | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. | | | | | |
No comments:
Post a Comment