Heidelberg Cement Posts Modest Numbers Sequentially

Heidelberg Cement India, a subsidiary of Cementrum I.B.V.( a Company incorporated under the laws of the Netherlands, which is 100% controlled by Heidelberg Cement AG) has posted a modest set of numbers for the September 2012 quarter. The net sales of the company during the quarter grew by 23.1 per cent YoY to Rs 256.18 crore and the net profit for the quarter stood at Rs 7.51 crore against a loss of Rs 8.16 crore in the September 2011 quarter. This is largely on the back of the low base effect in the corresponding period last year.  

The demand for cement remained quite muted last year in 2011. Weak economic scenario coupled with the high input cost and correction in the cement prices impacted the financial performance of the company. However, between January to June 2012, with strong recovery in demand and a hike in the cement prices, the company has shown strong revival which has been reflected in the stock price that has moved up by almost 50 per cent on an YTD basis.

However, on a QoQ basis, with the revival of the monsoon there has been a slackening in demand in the September quarter. The net sale of the company is down by 17 per cent while the net profit is down by 61 per cent.

On the operating front, despite pressure easing on the cost due to a better fuel mix use of petroleum coke, a decrease in the raw material cost by 15 per cent and that of power & fuel expenses by 1.5 per cent, the operating profit is down by 46 per cent on a QoQ basis to Rs 21.27 crore. Moreover, the operating margin declined by 400 basis points on a QoQ basis to 8.29 per cent. This was mainly because of the lower sales volume and decline in the cement realisation during the quarter.

Cyclically, the September quarter remains a muted quarter for the cement companies due to the monsoon when the infrastructure and construction activities lose momentum. During the quarter there was a correction in the cement prices by Rs 10-15 which led to lower realisations.

Outlook
Going ahead, with the monsoon making its retreat we believe that there will be a strong recovery in the demand in the coming quarter. With the recovery in demand cement companies will hike the cement prices too. Infact recently some of the cement companies, due to hike in the diesel cost, have raised the cement prices by Rs 5-6 per bag of 50 kgs. The hike in cement prices has caused a sentimental rally in the stocks over the last three weeks, pushing them higher by 10-15 per cent. And for FY13 the industry will see much better demand growth as compared to FY12 mainly on the back of higher infrastructure spending by the government, renewed demand from the rural areas and due to the elections scheduled in some parts of the country. In FY12 the industry dispatch grew by 6.9 per cent and it is expected to further grow by 8-9 per cent in FY13.