Cement Sector Report for the week (09 - 13.07.2012)

[rupeedesk]

Cement Sector Report for the week (09 - 13.07.2012)

Stocks of leading cement companies are seen gaining in the next five sessions on expectations of strong earnings in Apr-Jun. Most cement makers will announce June quarter earnings later this month. We expect Q1FY13 (Apr-Jun) to be yet another strong quarter for cement companies. Accordingly, the top 3 cement stocks have outperformed broad indices by 45-75% year-on-year. Cement demand across the country remained strong during Apr-Jun, which led companies to keep prices at elevated levels. This will help cement makers to post robust operating profit margins for the quarter. Earnings before interest tax depreciation amortisation per tonne is expected to increase both year-on-year and quarter-on-quarter. Average all-India cement prices are expected to be higher by 11% YoY and 5.5% QoQ, while average cost per tonne is likely to be up 8-9% YoY and 4% QoQ.

We expect sales volumes for the industry to have risen around 9.5% year-on-year in Apr-Jun, mainly due to a low base effect. On the back of this positive sentiment, stocks of most cement companies have been trading positive for the past three weeks, despite the Competition Commission of India levying hefty penalties on 11 companies found guilty of cartelisation. The companies found guilty were UltraTech Cement, ACC, Ambuja Cements, India Cements, Madras Cements, Lafarge India, Jaypee Cements, Century Cement, Binani Cement, JK Cement, and Grasim Cements which has merged with Ultratech Cement. The companies have been penalised 50% of their respective net profit for financial years 2009-10 (Apr-Mar) and 2010-11. The impact of this order is unlikely to be seen in the near-term as most companies have decided to challenge the order in the Competition Appellate Tribunal.

Seasonally, news flow regarding volumes and pricing is likely to weaken owing to onset of monsoon. However, structurally, we remain positive on the sector as we expect utilisations and prices, hence margins, to trend upward year-on-year.

By RUPEE DESK

rupe...@googlegroups.com