| Summary of Contents SHAREKHAN SPECIAL Q4FY2013 Cement earnings preview
Earnings to contract in Q4 Key points -
Expect soft performance in Q4: Despite it being a seasonally strong quarter, the earnings growth of the cement companies would be dented due to a sluggish demand environment and the continued cost pressure on the margins. Hence, the cumulative earnings of Sharekhan's cement universe are expected to decline by 13.8% on an annual basis. Shree Cement is the only company expected to post a positive earnings growth on account of the stabilisation of its merchant power plant and a relatively better cement realisation. On the other hand, the south-based companies like India Cements and Madras Cements are expected to witness a relatively higher pressure on earnings. -
Sluggish demand; weak volume offtake: The volume growth of the cement companies under Sharekhan's cement universe is expected to increase by 1-4% on an annual basis. For the full year FY2013, the all-India cement demand is estimated to grow below 6%, which is lower than the 6% demand growth registered in FY2012 and also lower compared with our estimate of 7-7.5% for FY2013. -
Realisation fails to pick-up: Given the sluggish demand environment, the average realisation was only marginally up (1-1.5%) sequentially despite it being a seasonally strong quarter. Among the various regions, the increase in the cement prices in the eastern and central regions to the tune of Rs15-20/bag on a sequential basis is relatively higher. On the other hand, the cement prices in the southern region (particularly Andhra Pradesh) have witnessed a sharp correction of Rs20-25/bag during Q4FY2013. The cement prices in other regions, like the western and northern regions, have largely remained flat on a quarter-on-quarter (Q-o-Q) basis. We estimate the average cement realisation in Q4FY2013 to be higher by around Rs80-100/tonne on a year-on-year (Y-o-Y) basis for the companies under our coverage.
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