High raw material costs to hit cement cos Q4 profits

Suresh P. Iyengar Mumbai | Updated on April 22, 2011


Despite higher production and sales, profits of cement companies in the fourth quarter of this fiscal will be under pressure due to the sharp spike in cost of raw materials such as coal, pet coke and gypsum, besides higher interest cost.

The series of price hikes implemented in February and March is unlikely to make up for the increase in operational cost. International coal prices alone on an average have gone up by 44 per cent year-on-year due to floods in Australia, said a cement company official.

Mr Ravindra Deshpande, Research Analyst, Elara Securities, said performance of the cement players are expected to be subdued due to the surge in input costs, higher interest and depreciation.

“However, their profit may improve when compared quarter-on-quarter basis due to higher volume, prices and the positive impact of operating leverage. The improvement in profitability is expected to be much higher for players having presence in the Northern region due to a significant hike in cement prices,” he added.

The average capacity utilisation is expected to increase to 81 per cent in the quarter under review, against 74 per cent recorded in third quarter of this fiscal.

Southern companies

Cement companies operating in the southern region are expected to register a sharp increase in the realisation, as they had confronted a difficult situation of surplus capacity and dwindling demand during the fourth quarter of last year.

“The increase in average cement realisation and higher output may benefit south-based cement companies. The bottom line of India Cements and Madras Cement is expected to grow by 50 per cent and 100 per cent respectively due to the low base effect and a sharp price recovery,” said an analyst.

The average all-India cement price in the fourth quarter increased by about Rs 10-15 for a 50 kg bag.

Cement dispatches

The sharp drop in cement dispatches in January has hampered the overall expectations in the fourth quarter, considered the peak season for the construction and infrastructure sector. The all-India cement dispatches in this fiscal till February has grown by about 5 per cent, which was well below the industry expectation, he said.

Published on April 09, 2011

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