Mumbai: Cement sector is expected to report healthy growth in earnings with strong improvement in price, moderated volume growth and continued benefit of lower power and fuel cost in Q1 FY 17, a report said.
"Q1FY17 remained positive for cement sector on most counts. The sector will report healthy growth in earnings with strong improvement in price, especially in North and Central regions, moderated volume growth of 10 per cent YoY and continued benefit of lower power and fuel cost though underlying commodity prices are moving up after hitting the bottom," Kotak Institutional Equities Research said.
All-India average cement prices increased by Rs 14 per bag QoQ in Q1, led by strong pricing rebound in north and central regions and moderate increases in west. These regions had the weakest prices earlier. Prices in North and Central regions have increased by Rs 30-40/bag qoq, Kotak Research analyst Murtuza Arsiwalla said.
The disparity in regional price movements offers lesser benefit for pan-India players over regional players based in North and Central India. The price trends are more beneficial for regional players J K Lakshmi, J K Cement and Shree Cement, Heidelberg and Prism Cement, who have a prominent presence in Central India.
Among pan-India players, Ambuja Cement's realisations is expected to improve compared to that of ACC and Ultratech as the former has negligible exposure to the South, which will face some weakness in realisations. Prices in the East region were flat QoQ, while weakness in the South will impact India Cement and Dalmia Bharat.
Lower production cost with improved prices will also allow cement companies to post better profitability in Q1, Arsiwalla said.
"We factor in profitability of cement companies which are set to increase to Rs 980/tonne in Q1FY17 from Rs 766/tonne in Q4FY16 and Rs 691/tonne in Q1FY16 due to improved realisations and lower cost of production by about 5 per cent YoY," it said.
The improvement in profitability would be more pronounced for players in North India owing to better cement prices and higher usage of pet-coke in overall fuel mix. Even though pet-coke prices have rebounded by 20 per cent QoQ, they are still down 40 per cent YoY, and will have a delayed impact on reported financials, the report said.
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