?Cement cos to see better margins in Q4?

The reduction in diesel and imported coal prices, coupled with good demand and price rise, are expected to result in better margins for the cement industry in the fourth quarter of FY09, say experts.

Soaring input costs, especially of power and fuel, resulted in a fall in cement companies? margins in India, which was evident in the Q3 results. Players like Grasim, UltraTech, Ambuja Cement, ACC Ltd and Binani, among others, reported de-growth in their bottomline citing high input cost.

Grasim Industries Ltd, while announcing its Q3 results, said, ?Though realisations improved, the impact was more than offset by soaring input costs, thereby affecting margins adversely.?

Experts note that the recent reduction in diesel and imported coal prices will benefit cement makers in the fourth quarter, compared to the two earlier quarters.

Coal prices have fallen around 60% after peaking in July 2008. Fall in diesel prices is also expected to save Rs 2-3 per 50 kg bag on a sequential basis. Meanwhile, transport prices are also projected to decline.

These, along with the fact that players are increasing prices citing good demand, have raised expectations that Q4 will witness an improvement in margins.

?Moreover, new capacities that were expected to come on stream in the fourth quarter seem to be delayed. The major concern was the entry of Murli Agro which was expected by February 2009 and expanded capacities of Grasim. Both are now witnessing a slow ramp-up of capacities,? said a Mumbai-based analyst who did not wish to be named.

Approximately, 16 million tonne of capacities was expected to come on stream in Q4. But the slow ramp-up means that the market remains unchanged.

Meanwhile, beating all estimates, cement players in some parts of the country have increased prices by Rs 3-5 per bag, on the back of rising demand.

J DattaGupta, chief commercial officer of ACC Ltd, had told FE last week, ?We have increased cement prices by Rs 4-5 per bag in UttarPradesh and Madhya Pradesh on account of good demand. The slowdown in demand had forced prices to dip in the month of November and December last year.?

Cement despatches during the last three consecutive months have gone up; November and December witnessed 11% and 12% year-on-year growth.

In January 2009 too, companies reported growth in dispatches, with ACC and Ambuja Cement posting 12.5% and 4.84% despatch growth respectively.

The Aditya Birla group reported a 7.35% rise in dispatches, while JK Lakshmi reported a 22% growth.