Three of the four top cement players that have so far reported results for the March 2012 quarter, have recorded higher operating profit margins year-on-year. Some have improved it sequentially, too, helped by higher realisations.

At Rs 320, all-India average cement price was higher by Rs 40 a bag (13 per cent) over last year.

This was Rs 20-25 higher over the preceding December-2011 quarter.

For the top players net profit (before exceptional items) grew in the band of 10-19 per cent, year-on-year. Profits were helped by growth in despatches as well as better realisations. Despatches growth for the industry was recorded at 9.5 per cent, year-on-year.

Revival in despatches

After a sluggish half-year, cement demand improved starting September. Higher orders from Government infrastructure projects and higher rural housing demand are believed to have driven growth.

The industry closed the year FY12 with a growth of 6.5 per cent in despatches. This is higher than the 4.5 per cent growth recorded for 2010-11. In the March 2012 quarter, ACC recorded despatches of 6.72 million tonnes, up nine per cent over the same period last year. Ambuja Cements recorded a similar growth. UltraTech Cement reported an eight per cent increase.

Cost pressure

Cement majors, however, had to deal with higher costs. At $115-120/tonne, thermal coal prices in the international market were seven per cent lower compared to last year, but rupee's depreciation against the dollar from 45 to 53 wiped out the savings. For ACC power and fuel costs as a percentage of sales rose to 23.6 per cent from 20 per cent last year.

Ambuja cements saw power costs at 24 per cent of sales. This was 21.7 per cent last year.

Besides, in March railway freight rate for cement was revised 20 per cent higher.

The players who used roadways to dispatch cement were also under pressure on increased petrol/diesel prices.

Improved profit margins

Cement manufacturers seem to have helped pass on increase in excise duty and Railway freight, apart from costs. For players such as Ambuja Cements and UltraTech Cement profit margins were higher both sequentially and year-on-year in the March quarter.

Operating profit margins for Ambuja Cements in March-2012 quarter was 29 per cent, up from 28 per cent last year and 23 per cent in the December-2012 quarter.

UltraTech Cement reported profit margin of 27 per cent. This is higher than the company's last year margin of 25 per cent.

A key overhang for cement stocks has been the Competition Commission of India's reported investigations into alleged cartelisation.

Any negative development on this front can hurt margins.

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