Cement companies likely to fare better in H2 FY12

The cement sector has remained a victim of lower demand and higher input costs in the last few quarters. However, the companies kept the prices of cement high to maintain their margins in order to offset the higher input cost. This was largely done by cutting down on production. Also, cement is a cyclical business and typically, the 2nd half of the financial year remains better than the 1st half due to a pickup in infrastructure and construction activity after the monsoon. Hence, we are likely to see upward movement in cement stocks in second half of the financial year.

During the Sep 2011 quarter, companies like ACC, UltraTech, and Ambuja Cements reported strong topline growth mainly due to higher volumes and increased realisations. Higher power and fuel costs resulted in margin pressure, though. Among the major cement players, Ambuja Cement has outperformed its peers and the overall market in the past one year. The scrip has gone up by 14.4%, and is currently trading at Rs 143 on the BSE. Other major cement companies like UltraTech Cement and ACC have also performed well, and are up by 9% each on a YTD basis.

However, factors like high input costs, a slowdown in infrastructure and construction activity due to heavy monsoon, surplus capacity and high interest rates have kept most of the small cement players under significant margin pressure. Thus, companies like JK Cement, Madras Cement and JK Lakshmi Cement are down by 32%, 3% and 31% on YTD basis respectively.

Ambuja Cements witnesses significant jump in dispatches in Nov 2011

Ambuja Cements is one of the major cement producing companies in India. With a total capacity of 27 MT, it is one of most cost -efficient companies, with the highest EBITDA/tonne of Rs 928 in 2010. The company witnessed strong recovery in its sales volumes during Nov 2011, with production growing by 27% and dispatches growing by strong 30% on a YoY basis to 1.83 MT.