The Indian cement industry with an output of 234 million tonne per annum is expected to register topline and bottomline growth for the third quarter ending December 2009, on the back of lower costs and higher volumes, analysts say.
The sector has witnessed a 10% year-on-year (y-o-y) growth in despatches during the third quarter, driven by the growth in construction activity in the country and incremental demand coming from rural and semi-urban areas.
Experts believe the volumes of Indian cement companies during the period would be higher by 8-10 % y-o-y.
According to a Motilal Oswal Securities report on seven top listed cement companies, the cement sector on an aggregate is expected to report a top line growth of 9.3% y-o-y with 24.9% y-o-y growth in net profit.
About 40 million tonne was added to the overall capacity in the past one year and another 40-50 million tonne is expected in the next 15 months. Meanwhile, on account of capacity addition, cement prices in the country witnessed a fall of 2.7% y-o-y during the third quarter.
However, prices strengthened by Rs 15-20 per 50 kg bag in the south and west owing to shortage of railway wagons, during December.
Moreover, power, which forms a major portion of the overall costs in cement manufacturing, witnessed a correction during the quarter owing to decline in coal prices.
?Correction in energy costs and operating leverage benefits would continue to keep y-o-y unit costs lower by 4% in the third quarter. Lower costs, higher volumes and slightly better realisations would help sector margins to rise 17% y-o-y,? said Somshankar Sinha, an analyst with CLSA in its recent report.
Average coal prices during the third quarter of FY 2010 were lower by 55% y-o-y at $76 per tonne, say experts.
?However, higher volumes in cement and viscose staple fibre (VSF) business and higher realisations and cost savings in the VSF business would drive margin improvement for Grasim,? said Jinesh Gandhi, an analyst with Motilal Oswal.
Industry players say the recovery in the residential real estate market, low-cost and affordable projects would improve the demand for cement.
However, oversupply concerns may persist over FY 2010-12.
