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Cement stocks: A mixed bag

For the nine months ended December 2015, revenue growth for top domestic cement companies show a mixed trend. For instance, while UltraTech and OCL witnessed a top-line growth of 5 per cent and 18 per cent, respectively , growth dropped 2.2 per cent for Ramco Industries.

Falling prices

Lower realisations from falling cement prices were a dampener for many.

Cement prices in Delhi (as measured by ACC Cement Shakur Basti prices) were down 17 per cent over the nine months period ended December 2015. Surplus capacity continues to challenge the industry.

Industry capacity utilisation is currently low at 73 per cent, with surplus capacity continuing to impact realisations. While North (78 per cent) and East (89 per cent) had relatively stronger capacity utilisation, it was lower for South (50 per cent) and West (71 per cent).

The net profit of ACC was down by 54 per cent in these nine months. . But Ramco and OCL managed to buck the trend by showing a net profit growth of 12 per cent and 32 per cent, respectively.

Operational costs were up for players with the hike in rail freight charges. However, it was partially offset for players such as ACC through reduction in raw material cost, power and fuel. Players also managed to reduce costs by importing cheaper coal, switching to cheaper fuel such as pet coke, as well as coal mix optimisation. UltraTech also took a hit because of the amendment to Payment of Bonus Act, 1965, which increased the bonus outgo to its employees with retrospective effect.

What’s in store?

Market volatility, coupled with low demand and weak growth, saw shares of all top players drop in the last one year. However, UltraTech Cement (down 8.8 per cent) and Shree Cement (down 5 per cent) managed to outperform the Sensex.

In contrast, ACC and Ambuja Cement were down about 28 per cent each. Going forward, the prospects of cement companies hinge on spends in the housing and infrastructure space. But, there is a ray of hope. Even amidst the challenging environment in the last one year, overallindustry top-line growth has picked up in the first nine months of this fiscal. In the June, September and December 2015 quarters, the overall top-line growth moved up steadily to 0.9 per cent, 1.6 per cent and 3.7 per cent respectively (over the same period last year).

The industry expects this trend to continue unless the government upsets the applecart — by delaying government spending in infrastructure, affordable housing (Housing for All) and smart cities.

The Hindu Business Line