India Cement Ltd Q4FY12 Result Update And Analysis

India Cement Ltd, a Chennai-based cement company, announced its March quarter result on Wednesday, April 25, 2012.  The company has reported a jump of 12.1 per cent in its net sales to Rs 1,118.5 crore as against Rs 997.9 crore in Q4FY11. The net profit of the company stood at Rs 64.9 crore against Rs 55.3 crore during the same quarter last year. The jump in the net profit was largely on account of the higher sales realisation which was up by 12.3 per cent to Rs 4,424 per tonne as that of in the same period last year. However, due to high base effect the sales volume of the company remained at the same level at 2.52 million tonnes against that of 2.53 million tonnes in the same period last year. However, on a QoQ basis the sales volume has jumped by 16 per cent.

The company has reported decent numbers despite an increase in the raw material and power & fuel cost which jumped by 9 per cent and 26.6 per cent on a YoY basis respectively. The company was able to keep the operating margins intact at 19.4 per cent versus that of 19.2 per cent in the same period last year. Moreover, the hike in the freight cost (up by 12.8 per cent YoY) by Indian Railways and other costs was also absorbed by the company on the back of a hike in the cement prices during the quarter which resulted in higher realisations. The company during the quarter increased the cement prices by Rs 20-25 per 50 kg bag to Rs 295

Despite a hike in the cement prices during the quarter, the net profit margin of the company remained at the same level at 5.8 per cent as compared to 5.5 per cent in the same period last year. This was mainly on account of increase in the interest cost which jumped by 55 per cent on a YoY basis. The hike in the cement prices helped the company to report stable margins during the quarter. This hike in prices was due to a pick-up in demand from the infrastructure and construction industry and due to a hike in the freight cost which was partially passed on to the customers.

The company, in a statement released on the BSE, stated that the performance during the fiscal year 2012 has remained satisfactory, especially in the last quarter of the fiscal. Even the southern region, which was facing problems of higher capacity and lower demand in the first nine of the fiscal, witnessed some revival in the last quarter. However, adverse market conditions such as disturbances in the availability of power in the  states of Andhra Pradesh and Tamil Nadu, reduced availability of coal from Singareni Collieries  Ltd, continuous fall in rupee against dollar, cost pressures due to increase in power tariff, increase in wages and the inflationary pressures impacted the performance.

The demand situation for cement companies is fairly better in the March quarter in all the regions, which cyclically remains the best quarter due to the highest pick-up seen in the infrastructure and construction activities. However, there are concerns with regards to higher capacities, higher input cost and freight cost in the coming quarter and fiscal year. Further, there has been a probe by the Competition Commission of India about the cartelisation of cement which may unfold soon and that could have a negative impact on the cement companies and the industry.

As regards the outlook, the company has stated that the cement industry s likely to grow over 7.5 to 8 per cent linked to the GDP growth forecasted for 2012-13 by the Economic Advisory Council. With the industrial sector showing signs of revival in the last quarter and given the government’s intention to boost agricultural development and provide a fillip to industrial growth, the projected growth in GDP could well be achievable.

In conclusion we believe the demand in the coming quarter will decline due to the monsoon which will lead to lower sales volume. Moreover, due to lower cement demand the prices will also move in the downward direction. On the other hand, firm input costs and high freight charges will result into margin erosion for these companies. The surplus scenario is likely to continue for the next three years. Moreover, the continuing rise in input costs will adversely impact the margins.