The macro economic conditions indicate a sluggish market due to challenging conditions and subdued demand.
South-based cement firms see demand rising, indicating pick up in the construction sector. According to Economic Times´ interaction with some south-based cement companies, the momentum is likely to sustain as the construction activities are likely to pick up in Andhra Pradesh and Telangana. It will give rise to demand of 23 mt in the next two years. The plants, which are in close proximity to these states, are likely to save a lot of freight cost which is a major cost for the cement companies. Higher cash flows will also help these companies to deleverage their balance sheets which can lead to re-rating of these stocks.
Deccan Cements has lowered its debt by less than half over the last five years. And the gradual pick up in earnings over the last two quarters has improved cash flows of the company. It has captive limestone mines and strong coal linkages. In the March 2015 quarter, its profits almost trebled over last year, and June quarter is expected to be good too.
NCL Industries has reported a 46 per cent sales growth in the March 2015 quarter and a strong turn around on the bottomline. It also has a board business (cement bonded board which is widely used) and hydropower plant. The board business, which is like a consumer business, brings close to one-fifth of the company´s total revenue, is growing in double-digits and has operating margins of 17 per cent.
KCP´s cement plant is very close to the proposed new capital of Andhra Pradesh, which will save a huge amount on freight cost for KCP. In FY15, freight cost was 10 per cent of the total expense, which also included expenses of other businesses - engineering and Sugar. KCP has a sugar business in Vietnam, which is profitable with EBIT margin of 10 per cent. The engineering business is making loss but should pick up with the revival in the economy.
Sagar Cements´ capacity has almost doubled to 2.35 mt after acquiring BMM cement. Sagar cement has a strong presence in the Andhra Pradesh market, and through BMM, it will tap key markets in Karnataka, Tamil Nadu and South Maharashtra. The Company has already announced its June 2015 quarter results in which it reported a Rs 23 crore profit against a loss of Rs 9 crore last year
Tamil Nadu-based companies
Ramco Cements Q1 net profit jumped 167 per cent to Rs 94.67 crore. The company had reported a net profit of Rs 35.51 crore in the year-ago period. Total income from operations was at Rs 952.78 crore during the April-June quarter, as against Rs 961.71 crore in the year-ago period. Total expenses from operations stood at Rs 767.64 crore during the period, registering a drop.
India Cements posted Rs 40.10 crore net profits for first quarter of the current fiscal ended June 30, 2015. The Chennai-based company had registered net loss at Rs 2.96 crore in corresponding quarter of the previous financial year. Total income from operations for the April-June 2015 quarter slipped to Rs 1,075.45 crore from Rs 1,234.82 crore registered during year ago period.
JK Lakshmi Cement reported a standalone net loss of Rs 23.48 crore for the quarter ended June 30, hit by a subdued market and higher costs. It had posted net profit of Rs 40.45 crore in the April- June period of last fiscal. Total standalone income of the company fell by 2 per cent to Rs 590.75 crore in the first quarter of the current fiscal, from Rs 600.42 crore in the same quarter of 2014-15 due to lack of demand. The company´s total expenses rose by 12 per cent to Rs 579.27 crore from Rs 515.25 crore in the reported quarter. The company also bore the additional burden of interest and depreciation to the tune of Rs 37.58 crore on account of commissioning of first phase of its greenfield cement plant of 1.7 mt at Durg in March 2015. It has incurred a loss of Rs 34.91 crore at PBT level in the April-June quarter as against profit of Rs 49.65 crore in the year-ago period.
Orient Cement has reported a 20 per cent decline in net profit at Rs 27.89 crore for the quarter ended June 30, 2015 on the back of fall in revenues. The total income from operations decreased 8.69 per cent to Rs 349.40 crore as compared with Rs 382.65 crore in the corresponding quarter last year. The year on year volume dropped by 10 per cent and the price realisation from the preceding quarter has dropped by over 8 per cent largely caused by drop in Maharashtra volumes and realisation. The net EBITDA for the quarter is down 10 per cent compared to same quarter last year.
Source: Economic Times