Cement sector: Q3 results expectations

After going through a tough phase in the last 2 quarters, the cement sector may report better numbers in Q3 FY12. The last 2 quarters remained subdued for the industry due to lower demand and high input costs. However, Q3, especially Dec 2011, had seen an improvement in the demand from infrastructure and construction activity. With good demand in most of the regions, cement companies resorted to price hikes in the third quarter, which was also done to offset some part of the input costs.

From the initial dispatch numbers reported by some of the major cement companies, it has emerged that on the whole, the quarter was in favour of the cement companies, unlike the previous 2 quarters. Generally, cement companies tend to fare better in the 2nd half of the fiscal, as during this period, infrastructure and construction are at their peak levels due to favourable climate.

ACC Cements saw a jump of 9% YoY in its dispatches for Dec 2011, while Ambuja Cements and UltraTech Cements' dispatches grew by 6% and 11% on a YoY basis respectively. On a quarterly basis, the dispatches for Ambuja Cements have grown by 11%, while ACC and UltraTech's sales volume grew by 6% each.

The cement industry, which was reeling under price pressures through the monsoon, also started raising prices across the country from Oct 2011 onwards. The overall hike was between Rs 20-30 per 50 kg bag in Q3 FY12. This hike in cement prices will lead to a higher jump in the realisations of cement companies in Q3.

If we look at the pan Indian growth in demand, as published by the Cement Manufacturers Association of India, the dispatches for Dec 2011 have grown by 13% to 19.78 MT. For the quarter, the dispatches have grown by 9.83% on a YoY basis. This is largely on the back of a pickup in infrastructure activity for Dec 2011, and a lower base effect in Nov in the same period last year.