Economy & Market
Demonetisation may cause cement firms to report fall in volume, says Kotak
In a quarter plagued by uncertainty owing to currency demonetisation, Kotak expects mixed results from the cement sector - pan-India players are likely to report volume decline and flat realisations, players in the North will report weakness in volumes with sequential drop in realisations, and South-based players will report healthy volume growth coupled with sequential improvement in realisations. Rich valuations and continued earnings risk prevents Kotak from taking a constructive stance on pan-India players.
For Q3FY17, cement prices have averaged Rs 326/bag-flat sequentially. Sequential improvement will be seen in the West and South as prices in Central and North India trend lower. The sequential decline notwithstanding, Kotak says that cement prices in North, Central and West for Q3FY17E will appear substantially better off compared to the same period last year. Among the brokerage house's coverage, Orient Cement stands out for a strong 14 per cent quarter-on-quarter improvement in cement realisation owing to its large concentration in Maharashtra and Andhra Pradesh.
Kotak's coverage universe will report a 3 per cent year-on-year decline in cement volumes, compared to 3.7 per cent year-on-year growth for October-November 2016 (based on DIPP), reflecting the impact of weakness in December 2016. Pan-India players will likely report decline in volumes (5-9 per cent), says Kotak, while players in the South appear to have been less impacted owing to institutional demand likely in the AP/Telangana region that will likely allow players such as India Cement and Dalmia to continue to report healthy volume growth.