Cement sector - Q2 result to remain muted

Cement companies are expected to report a lackluster performance in the September 11 quarter and that's largely due to rising input costs and lower volume off take. The second quarter of FY12 is the monsoon season, and typically, there is a moderation in construction activity which will impact the cement off take in Q2FY12.

The total production and dispatches on fiscal to date basis has improved by mere 2% which is below the expectations. Moreover the initial data released by the major cement company for September month was mixed. Dispatches for Ambuja cement increased by 2.5% YoY and 3% on a month on month basis. Ultra tech cement monthly dispatch numbers were also not encouraging and declined by 3.2% on a YoY basis. ACC cement dispatches were up by 9% on account of expansion in the capacity.

Cement prices in June and during quarter 2011 corrected by an average of Rs 12-15 per bag due to the monsoon and increase in the supply. The northern and western regions faced comparatively higher pressure on the price during Q2FY2012. However, the pressure on cement prices was relatively less in the southern region where prices were increased to offset the margin pressure despite lower demand by maintaining strict production discipline.

The realization during the quarter will be lower for the industry especially for the northern and the western region due to decline in the prices however southern region will not see major impact on the realization due to supply discipline.

The cement industry, which had been reeling under price pressure through monsoon, has started raising prices across the country from October 2011. Prices have shot up by Rs.10- 15 per 50-kg bag in most of the regions except southern region where prices were already raised during the quarter and will be maintained during the month. 

The volume growth for the industry during April-September2011 period was disappointing production and dispatches increased by just 2%. However for the second quarter dispatches grew 4.4% on back of lower base effect. Further initial trend of large companies for September 2011 the numbers were not encouraging. Besides though monsoon have mostly ended, the construction activity will take a bit longer to pick up pace as the availability of labour would be comparatively weak due to the onset of the festive season.

We can expect most of the companies particularly for the company’s in southern region to post muted growth in the sales volume due to sluggish demand environment during the quarter, though the prices are expected to remain firm and the companies would maintain their realizations on back of supply discipline.