Rains to hit Q2 topline of cement cos

Hit by severe monsoons and a dip in prices due to lower demand, the 270 million tonne Indian cement industry will witness its topline and bottomline getting hit during the second quarter ending September 2010. Cement players with whom FE spoke to, say the financial results of the industry are expected to be muted in the quarter, on a year-on-year basis.

On an average, analysts expect margins of cement companies to decline by 10-12% y-o-y, with an average 10% y-o-y fall in realisation. Similarly, average topline of the cement industry is expected to decline by 5% to 8%, severely impacting the bottomline with 20%-80% decline y-o-y. ?A few cement companies in the southern region are also expected to make losses this time,? said a Mumbai based analyst requesting anonymity.

Shree Cement CMD HM Bangur said, ?The second quarter results are expected to be lower than the last year for the whole industry. Total volumes during the quarter have increased by 6%.

However, cement price fall and other factors will result in negative topline. Hence, the profit is expected to decrease sharply during the quarter.?

With monsoon season on its full swing this time, demand was sluggish, with cement despatches being flat in July and down by 3.83% sequentially in August 2010.

?We are not expecting any bright results this quarter due to rise in coal prices and freight charges,? said Binani Cement MD Vinod Juneja.

According to an IIFL report, the average international coal prices are 30% higher y-o-y. Domestic road freight rates are also up 20% y-o-y, owing to the economic revival and the increase in diesel prices. Coal costs and freight costs form 50% of total cost for cement companies impacting the cost of production for cement companies.

However, cement players have raised cement prices twice this month, hinting that price discipline is back with the producers. ?The rising cost and negative ebidta has triggered this move,? say industry players. However, experts believe these price hikes are not sustainable at these levels as they are driven by players in the south who fear making ebidta losses in the coming quarters by taking production cuts.

There have been two rounds of price hikes in the southern region (Rs 25-40 per 50 kg bag in the first week of September and Rs 15-25 per bag in the second week) and western region (Rs 5 per bag in first week and Rs 10 last week), despite low demand. Hence, prices are expected to correct again due to oversupply situation looming large.