Cement Sector Result Preview For June 2012 Quarter

The second half (July 2011 to March 2012) of the fiscal year 2012 has brought cheers for the cement industry on the back of pick-up in the infrastructure activity and increase in the cement prices (10-15%). Starting from the Dec quarter 2011 the improvement in growth was carried forward in the March quarter 2012. However, the question that arises is whether the industry has been able to carry forward the trend in the June quarter also?

To know the scenario, we looked at the cement dispatch numbers released by the industry Body Cement manufacturing association (CMA). Dispatch grew by 12.8% on YoY basis to 48.3 mn tonne during the quarter.  And it quiet visible that the demand trend as compare to previous year is certainly much better (There is some low base effect also). Last year the scenario got worst for the cement companies which reported lower dispatch numbers and witnessed decline in realization due to slowdown in the infrastructure and real estate sectors. The situation got worst when falling cement price was coupled with rising raw material cost and Power&Fuel Cost which strongly impacted the bottomline and margins of the cement companies.

However in the June quarter 2012 apart from some regional issues with the availability of sand and lab our, the overall situation across the country in the first half of the year 2012 was better than that of 2011. This is proved from the dispatch numbers reported by the major cement company's in the last six months. This surprised us a bit initially as with the onset of monsoon the cement demand cyclically tends to declines in June quarter. However, with the monsoon arriving late and due to better infrastructure activity, the dispatches have remained quite firm during the quarter. A better demand situation, delayed monsoon and holding of the cement prices at Rs 300 per 50 kg bag are some of the positive factors during the quarter. Moreover, better dispatches and high cement prices have helped the cement companies to set off some of the high freight and power & fuel cost which will result into better margins as compared to the same period last year.

The top three major cement producing companies i.e. Ultratech, ACC and Ambuja, which account for almost half of the country’s production, reported decent growth in dispatches during the June quarter 2012. The dispatches of Ultratech and Ambuja Cement grew by 5 per cent and 6.3 per cent on a YoY basis respectively. However, ACC reported flat 2.18 per cent YoY growth.