Q2FY14 Results Preview: Cement Sector

Cement is among the core industries of the economy, but has been bleeding over the past few quarters. The Q1FY14 numbers revealed a poor performance, following a sluggish economy and the early onset of the monsoon. On a yearly basis, the aggregate topline of the top 26 companies in the industry dipped by 1% in Q1FY14 whereas the profitability took the major hit of 37% in the same period.  The top three players, i.e. UltraTech Cements, ACC and Ambuja Cement, which contribute around 52% of the total sales of the sector, have reported negative growth of 2%, 5% and 6% respectively in the realisations per tonne on a yearly basis.

The industry suffered with high input and freight costs in Q1FY14, which hampered their profit margin. In this background, cement manufacturers have raised the price of 50 kg bags by 30% to Rs 275 per bag. This is expected to cross Rs 300 per bag in the near future.

Nonetheless, the industry is under pressure, and the demand of cement in Q2FY14 has remained subdued. Hence, the sales volume is expected to remain sluggish during Q2FY14, which in turn would have a negative impact on the sales figures. In India, the second quarter is typically the toughest for the cement sector, since this quarter is affected by the monsoon season. Infrastructure and construction activities decline during this season, which indirectly hampers the sales of cement.

For the elapsed quarter, one should not expect any significant improvement in the toplines or bottomlines of companies belonging to this sector. In fact, there is a possibility of negative growth on a yearly basis. The whole sector, apart from some local players in the industry, is likely to disappoint its investors with the Q2FY14 results.

However, the sector can relax now as the major hurdle, i.e. the monsoon, has departed from major parts of the country. One can expect infrastructure spending to go up in the coming months due to the elections, which would be a revenue generating opportunity for the sector. The government has also stepped up to indirectly support the sector with the ‘Funding for Lending’ scheme, according to which borrowing rates would be reduced for home loans. This too, will work in favour of the cement sector going forward.