India Cements Q2 FY12 results analysis

India Cements, a Chennai-based cement company and the owner of the Chennai Super Kings IPL team, announced its September 2011 quarter results on Monday, 14th November, 2011.  The company reported a jump of 25.02% in its net sales to Rs 1092 cr, as against Rs 843 cr in Q2 FY11. The jump in the net sales was largely on account of a higher sales realisation, which was up by 44% to Rs 4500/tonne, as against that of  previous year same quarter. The net profits of the company stood at Rs 70 cr, against a loss of Rs 31 cr during the same quarter last year.

The company maintained higher cement prices by cutting down its production during the quarter in order to offset the increase in input costs. However, the significant jump in the realisation was also due to a low base effect, as cement prices had gone down significantly in the same quarter last year. The sales volume of the company declined by 10% to 2.42 MT due to the monsoons and ongoing political issues in Andhra Pradesh. 

The increase in cement prices in the southern region has helped players there post better margins during the quarter. The prices are now stable in the south, whereas other parts of the country have seen a hike of Rs 5-15 per 50 kg bag.

Looking at India Cement's QoQ performance, the topline grew by 3%, whereas net profits were down by 31%. This was on account of higher interest expense coupled with higher tax outgo and forex translation charges, which impacted the company's bottomline sequentially. The higher interest outgo was on account of replacement of FCCB through debt and higher utilisation of the working capital limit. 

On the performance of the sector for the last 6 months, the management, in its statement after the results announcement, said that  the market is yet to pick up, and showed practically zero growth during the first 6 months of this year.

With regard to the outlook, we, at DSIJ, believe that the demand will get better and continue to be higher in the second half of the year due to construction activity picking up post the monsoons. However, the pickup will remain slow on account of higher interest rates that may delay some of the projects, and may gain pace only in Q4 FY12. Also, the ongoing issue in Telangana, Andhra Pradesh, will impact the demand and volume offtake of the company in the coming quarter. Further, the input costs (coal prices) will continue to be at higher level due to the lack of availability of coal in the country, which will lead to importing at higher costs. 

The stock closed at Rs70.60 on Tuesday, 15th November, 2011, and was down by 6.30% on the NSE. So far, it has touched a high of Rs 76.70 and a low of Rs 70 in trade after the results announcement.