The Hindu Business Line : Higher price realisations help cement cos in Q2

Mumbai, Nov 2 Despite good realisations in the second quarter, very few cement companies could meet the market expectations due to high cost of raw material, freight and power.

“Imported coal prices on a c.i.f. basis have almost doubled to around $120 per tonne in the past nine months, driven by huge increases in sea freight. However, commissioning of coal-based power plants will reduce dependence on high-cost, oil-based power plants,” said Mr Rakesh Arora, Chief Financial Analyst, Macquarie Research.

Realisations of top cement companies grew substantially on high prices.

Companies that have a major presence in the southern States, which witnessed the highest price in the quarter, saw their realisations zoom. Cement prices in Tamil Nadu and Karnataka rose by Rs 18-20 per 50 kg bag.

Madras Cement’s realisations jumped 27 per cent to Rs 3,705 per tonne and India Cements’ 27 per cent to Rs 3,350. Among others, ACC’s price realisation was up 11 per cent to Rs 3,587 per tonne, Ambuja Cement’s 9 per cent up to Rs 3,394 per tonne and UltraTech 18 per cent to Rs 3,215.

Though cement companies shut some of their units for maintenance in the second quarter, capacity utilisation was well above 95 per cent for most.

Following strong demand and healthy utilisation, prices across the country have seen an average increase of Rs 7-8 per bag, an increase of 4 per cent quarter-on-quarter and 15 per cent year-on-year .

Prices may rise

The southern region saw a sharp rise in prices. Following strong demand another round of hikes is likely in the coming November -March construction season.

“Though it may vary from place to place, we expect prices to increase by another Rs 3-5 per bag in November depending on the demand-supply scenario,” said Mr Rajan Kumar, analyst, Networth Stock Broking.

“We believe that with strong urban and rural housing demand and traction in infrastructure investments in the country, cement demand is likely to grow at a CAGR of 10 per cent over next two years,” said Mr Ajit Motwani, research analyst, Emkay Stock Broking.

Following highly remunerative cement prices, the industry by financial year 2010 has planned to enhance total capacity by 110 million tonnes (mt), which is 70 per cent of the current capacity.

Capacity addition of 43.7 mt in fiscal 2009alone is a 19.5 per cent increase and is likely to unsettle the demand-supply equation and result in significant supply overhang in the second half of fiscal 2009 and beyond,” Mr Motwani said.