Cement firms put up good show in Q4, beat estimates

New Delhi: Cement companies were the surprise package this earnings season. They posted a strong set of sales, EBITDA and profit after tax as better prices led to higher realisations in central India and eastern India. Operational efficiencies and better operating leverage, despite increase in diesel and petcoke prices, also helped them perform well.

For the past few years, the cement sector had been registering a mediocre earnings performance due to overcapacity leading to feeble price movement.

Fourth quarter earnings of Dalmia Cement, Ultratech, India Cement, Shree Cement, Ramco Cement, ACC and Birla Corporation gave positive surprises while only that of Ambuja Cements gave a negative surprise, brokerage firm Motilal Oswal said in its fourth quarter earnings review.

“Top 10 cement companies reported sales growth of 26.3 per cent against expectations of 14.9 per cent, EBIDTA growth of 24.4 per cent against expectations of 12.2 per cent and profit after tax (PAT) growth of 15.7 per cent as against 2 per cent negative growth expectations,” Motilal Oswal said.

“Realisations for the top cement firms increased by 2 per cent quarter-on-quarter on account of better prices in the central India and east India markets, though partially offset by weaker prices in north India and south India,” Motilal Oswal said, adding that “with the resolution of sand mining issue in UP, demand picked up in the region. East witnessed pricing improvement led by improved utilisation, as demand picked up after the resolution of the sand mining ban in Bihar.”

“Increase in diesel and petcoke prices impacted freight and power and fuel costs for the companies. However, companies were able to mitigate the impact through operational efficiencies and better operating leverage. Thus, cost per tonne remained flat.”

Further, cement companies guidance indicates the demand to be favourable in the coming years due to housing, infra and irrigation projects.

“Also with no capacity additions coming up for the next 18-24 months in the North, utilisation should improve, leading to better prices, and thus, better realizations.”

“With the sand mining ban lifted in many states like UP, Bihar and Tamil Nadu, significant traction is expected from the central and southern regions,” companies said.

Recent increase in petcoke prices is likely to affect power and fuel cost. Additionally, an increase in diesel prices would further raise freight cost.

“Companies should be able to mitigate the effects of rising fuel costs through increase in operating leverage and adequate price hikes,” Motilal Oswal said.

Among other key sectors, global cyclicals single-handedly drove the fourth quarter performance led by metals and oil marketing companies (OMCs). Within domestic cyclicals, auto, capital goods, private banks and PSU banks posted weaker-than-expected PAT growth, Motilal Oswal said.

In BFSI, while NBFCs maintained their earnings growth trajectory (35 per cent PAT growth, multi-quarter-high), corporate banks reported a significant jump in slippages and provisions after the new RBI framework on asset quality. Auto was dragged by Tata Motors.

Consumer sector posted a very broad-based, healthy performance, with strong double-digit EBITDA and PAT growth.

Telecom posted third consecutive quarter of loss, while healthcare universe posted fifth successive quarter of profit decline.