NEW DELHI : Strong domestic cement demand led to cement companies reporting strong double-digit volume growth during the previous quarter but the limited improvement in realisations and lower-than-expected decline in costs meant that overall performance was a mixed bag.
Data compiled by Mint for 42 cement companies showed that the net profit improvement was tepid at 5.8% year-on-year (y-o-y) during Q1. Also, on a sequential basis the net profit declined 12%.
The raw material costs, which were still 17.4% higher year-on-year, were up 2% sequentially. Not much improvement in realisations meant that the operating performance remained muted. The profit before interest and tax though was up 14.4% year-on-year, but declined 7.5% sequentially.
As per Jefferies India Pvt Ltd, the average Q1 realisations declined 1% sequentially for companies under its coverage as producers passed on some part of sequential cost decline to boost volume growth. On a year-on-year basis realization declined around 4%.
The volume growth, however, stood at 18.8% year-on-year for companies under Jefferies’ coverage universe.
The lower realisations impacted operating performance even as volume growth supported revenues. The all-India average cement prices per 50kg bag during Q1 had declined to ₹355, from ₹358 during the previous quarter and ₹365 during the year-ago quarter.
Analysts at a domestic brokerage said performance of cement companies came slightly below expectations as profitability did not see much improvement over the previous quarters. The reduction in operating costs was lower than what management had guided earlier and hence while analysts expected Ebitda per tonne improvement of ₹100 or even more, actuals were much lower.
Analysts at Centrum Broking said the average Ebitda per tonne for their coverage universe at ₹889.60 improved marginally from ₹866.90 in the previous quarter. On a year-on-year basis the per tonne profitability was still 7.8% lower.
Mangesh Bhadang, senior analyst at Centrum Broking said realizations did not see much improvement though volume growth was strong at 18% year-on-year and on expected lines.
Even as per Jefferies, average Ebitda per tonne for its coverage universe during Q1 came at ₹930 (below its estimate of ₹960).
The average Ebitda per tonne improved ₹30 sequentially and was lower by ₹ 70 y-o-y. During Q1, the highest sequential uptick in Ebitda per tonne was reported by ACC Ltd and Heidelberg Cement while the highest sequential decline was reported by Ramco Cements, Dalmia Bharat and JK Lakshmi Cement, as per Jefferies.
The challenges continue in the ongoing quarter too, that remains seasonally weak as construction activities slow down post onset of the monsoon. Analysts said that bottoming out of cement prices in the seasonally weak quarter remains crucial and it is the uptick in the prices thereafter that can support earnings of cement manufacturers.
Latest channel checks by Yes Securities indicate that all India weighted average price moderated 1% month-on month in August and 2% as compared to average Q1 FY24 prices.
Prices for the quarter will be watched out for. Rajesh Ravi, senior analyst at HDFC Securities said that average prices during the quarter are expected to decline sequentially. However, he remained positive on volume prospects.
The August channel check by Yes Securities hints mid to high single digit volume growth on a year-on-year basis. Analysts expect volume growth to be strong during FY24 and this keeps them positive on the sector. Cement price movement in the ensuing quarters though will be watched for.
Meanwhile a positive is that the three-month trailing blended fuel cost in August also corrected to ₹1.5 per kcal/kg (kilo calorie per Kg) versus ₹ 2.16 per kcal/kg in Q1 FY24 as per Yes Securities. The sustenance of the trend can also provide support to earnings prospects of manufacturers.
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Updated: 22 Aug 2023, 09:42 PM IST