Madras Cement Reports Decent Numbers For March Quarter 2012

Madras Cement, a south-based major cement producing company, has announced its result for March 2012 quarter. The company has reported decent growth in topline and bottomline on YoY basis. The net sales of the company grew by 33 per cent on YoY basis to Rs 911.87 crore. The net profit has grown strongly by 55.7 per cent on YoY basis to Rs 99.19 crore. This was due to some demand revival in the southern region which went through worst times. The strong performance of the company was on the back of better sales volume and higher realization as compared to the same period last year. Most of the cement companies in the southern region resorted to reduce cement production in order to offset the high input cost and lower cement demand during the quarter.

However the EBITDA margin of the company declined by 300 bps on QoQ basis to 22 per cent. This was mainly due to increase in the raw material, power & fuel and freight costs which increased by 19 per cent, 24 per cent and 50 per cent on YoY basis respectively. However, due to decline in the interest component the net profit margin improved by 160 bps to 11 per cent. The overall debt of the company has reduced by 9 per cent on YoY basis to Rs 1,500 crore which resulted into lower interest outgo.

Also on QoQ basis the performance of the company was quite good. The net sales of the company have gone up by 23.1 per cent and the net profit has gone up by 29 per cent. The main reason behind the decent QoQ result was the jump in the demand and increase in the steel prices during the quarter. Cement companies in the southern region increased the cement prices by average Rs 20-25 on per 50 kg bag to Rs 300. The cut in production has helped the south-based cement companies to maintain the cement prices in the scenario where demand was turning positive.

We believe that the faster ramping up of capacity in the last two years has led to an over-capacity situation in the southern region. This was coupled with slowdown in demand and higher input cost in 2011. The situation got more difficult for the cement companies to keep their heads above water in the first nine months of FY12. Most of the companies in the slowdown situation did not opt for a price cut but kept the cement prices firm by cutting down the production which helped them to maintain the realization. However, their volume got impacted.

The company, despite all the headwinds, has performed well in the March quarter which cyclically also remains the best quarter as construction and infrastructure activities are at their peak levels. However, with the onset of the monsoon these activities will slow down and its impact will be seen on demand in the June 2012 quarter and consequently a decline in the cement prices. Moreover, high raw material cost and high freight charges will keep the margins under pressure. Therefore the June quarter will remain subdued for the cement companies.  

However, we also believe that the fiscal year 2013 for the cement companies will be better than FY12. Higher infrastructure spending by the government and pick-up in construction activity will drive the growth.