| Summary of Contents
| SHAREKHAN SPECIAL Q1FY2013 Cement earnings preview
Realisation to support earnings growth Key points -
Volume offtake improved in Q1FY2013: With an increased consumption from the rural market and a partial pick-up in the infrastructure activity, the cement offtake in the domestic market improved in Q1FY2013. The all-India cement volume in the April-May 2012 period grew by 11.9% year on year (YoY). However, the volume data of the large players for June 2012 is not encouraging (shows a decline month on month [MoM]) due to the arrival of the monsoon. Overall, we expect the volume growth to support the revenue growth of the cement players in Q1FY2012. Among Sharekhan's cement universe, Madras Cements, JP Associates and Shree Cement are likely to register an impressive volume growth on the back of the stabilisation of their new capacities. For FY2013 we expect the all-India cement demand to grow at around 8% as compared with 6.3% in FY2012. -
Average realisation for Q1FY2013 to be higher YoY as well as QoQ: Cement prices in April 2012 increased by an average of Rs10-15 per bag due to an increased cement offtake in the northern, western and central regions. The western, eastern and southern (Tamil Nadu) regions witnessed relatively higher price hikes during Q1FY2013. On the other hand, cement prices in northern and central regions witnessed relatively lesser price hikes. The average cement realisation in Q1FY2013 is estimated to be higher by around Rs200-250 per tonne quarter on quarter (QoQ). The realisation of the companies under our coverage is expected to increase by 4% to 8% sequentially. Shree Cement, and Orient Paper and Industries (Orient Paper) are expected to post a relatively higher growth in their realisation. Further, on a year-on-year (Y-o-Y) basis as well, cement prices across the major cities were higher. Hence, cement companies are expected to register a double-digit growth in their revenues. Further, as per our channel check, the cement prices have gone up by Rs10 per bag after the Competition Commission of India (CCI) imposed a penalty on cement companies for cartelising. Going ahead, we believe cement prices will see a seasonal correction in the coming couple of months. However, for FY2013 the average realisation will be higher as compared with that in FY2012. -
Cost pressure to offset benefit of price hikes; margins continue to be under pressure: With the support of growth in the volume as well as realisation, the revenue of the cement companies under our coverage is likely to increase by 9% to 35%. However, the positive impact of the increased realisation on the margins is expected to be offset by the cost pressure in terms of higher power & fuel and freight charges (due to an increase in the lead distance). The Sharekhan cement universe is expected to post a mixed bag of results on the margin front. Companies like Shree Cement, India Cements and Orient Paper are likely to report an expansion in their operating profit margin (OPM) whereas Madras Cements and UltraTech Cement (UltraTech) are expected to register a contraction of 300-475 basis points in their margin. -
Average bottom line to increase by 17.7% YoY (ex Grasim): The cumulative revenue of the Sharekhan cement universe is expected to grow by 17.3% (ex Grasim Industries [Grasim]). However, on account of the continued cost pressure the cumulative OPM is expected to contract by 46 basis points. The average bottom line growth of Sharekhan cement universe works out to 17.7%.Shree Cement, Madras Cements and Orient Paper are expected to post a healthy earnings growth in the range of 24-90% YoY. On the other hand, UltraTech is likely to post a earnings growth of 9.1% and India Cements likely to post a decline of 4.8% in its earnings YoY. -
Outlook going ahead: Due to the increased consumption from the rural housing segment and a partial pick-up in the infrastructure activity, the cement demand has improved over the past couple of months. Going ahead in FY2013, we believe the domestic cement demand will grow by around 8% as compared with the 6.3% growth in FY2012. Further, with the healthy realisation and a likely improvement in the utilisation ratio (marginal), we believe cement companies would register a double-digit growth in the revenues. However, the key risk remains the cost pressure in terms of the power & fuel cost and the freight charges. Further, any break in the supply discipline (due to the penalty imposed by the CCI) could affect the stability of cement prices at higher levels. Hence, we maintain our neutral view on the cement sector but are positive on selective picks. In the large-sized space we prefer Grasim and among the mid-sized companies we like Orient Paper.
Click here to read report: Sharekhan Special | | 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