Cement companies will see an overall improvement in their business dynamics soon. The impact of three major factors ? a better-than-expected price realisation, easing of cost pressures and an increasing growth in despatches ? are expected to boost earnings before interest, tax, depreciation and amortisation (EBITDA) margins anywhere between 8-15% in the quarters to come, said analysts here.
Despite a slowdown in the overall economy in general and key user industries such as real estate/ construction in particular, cement companies have been able to hold their prices steady over the past few months.
In fact, the industry has only partially passed on the benefit accrued from the recent reduction in excise duty to customers, analysts claimed. This essentially means that consensus earnings estimates of cement companies can potentially see an upward revision, they added.
After a subdued demand in the early part of this fiscal, demand has started picking up and the industry is expected to post better-than-expected growth at 8% in overall consumption. With the government?s stimulus package in place coupled with reduced lending rates, the demand from the real estate sector will pick up.
According to industry sources, due to a slowdown in global economic activity, prices of commodities such as coal and crude oil are under severe pressure and the trend is expected to continue for some more time.
Price of coal imports has fallen to $78 a tonne at present, as against $193 a few months ago, a decline of 60%. The fall in freight rates too will add to the margins of companies using imported coal as feedstock.