India Cements Ltd Q3 Result Analysis

India Cement Ltd, a Chennai-based cement company, announced its December quarter result on Monday, February 6, 2012.  The company has reported a jump of 20.5 per cent in its net sales to Rs 943.95 crore as against Rs 783.5 crore in Q2FY11. The net profit of the company stood at Rs 56.31 crore against Rs 21.47 crore during the same quarter last year. The jump in the net profit was largely on account of the higher sales realization which was up by 12 per cent to Rs 4,330 per tonne as that of in the same period last year. The sale volume of the company has also gone up by 7 per cent to 2.18 million tonnes against that of 2.04 million tonnes in the same period last year.

However, the QoQ performance of the company was not encouraging. The topline on a QoQ basis has declined by 13.5 per cent whereas the net profit was down by 19 per cent. This was largely on account of the lower sales volume and lower realization which declined by 9 per cent and 3 per cent respectively as compared to the September quarter 2011.

In the southern region all the cement players have faced issues of slowdown in demand, over-capacity due to faster expansion and higher input costs. However, to tackle the situation most of the companies went for a production cut instead of going for a reduction in the cement prices, thus resulting in higher realizations. This has helped them to post better margins during the quarter. The capacity utilization in southern region is at 60 per cent. At present the prices are stable in the south whereas in other parts of the country we have seen a hike of Rs 5-15 per 50 kg bag in December.

The company, despite all the headwinds, has performed well in the December quarter on a YoY basis. And with the improving macro economic situation we believe that cement companies will do better in Q4FY12 as well. The interest rate has peaked out and the RBI has cut the CRR rate by 50 bps to improve the liquidity situation in the economy. This has also somewhat eased the liquidity situation for the infrastructure and construction companies to fund their ongoing and new projects. Therefore we believe that with the changing economic situation and the demand likely to turn for the better, the company should be able to report better Q4FY12 results. 

It has also commissioned a 50 MW power plant in January 2012 near Tirunelveli in Tamil Nadu and trial runs are being undertaken for captive power consumption. This will help the company to reduce its power and fuel costs going ahead. The stock closed at Rs 94 on Tuesday and was down by 0.35 per cent on the BSE. So far it has touched a high of Rs 97.70 and a low of Rs 93.30 in trade after the results’ announcement.