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Stocks of major cement manufacturers are expected to trade in the red next week as, with companies set to detail their Oct-Dec earnings, we see another weak quarter on the back of slow pick-up in demand and low volume off-take. Though Oct-Dec was slightly better than the Jul-Sep quarter, on a year-on-year basis, both, reported revenue and profit numbers would be lower. The mood around cement sector stocks will definitely be grim. There has not been much pick-up in demand for cement despite good monsoons. Also, companies have been trying to keep prices high but have not been successful. Therefore, price realisations were low during Oct-Dec. Average all-India cement realization was down 3.5% on year in Oct-Dec and marginally up quarter-on-quarter. Average prices are likely to be up 1-3% on quarter in central, west and south regions, while average prices are expected to be down 1-2% on quarter in north and east. Industry volumes have grown only 3% on year and 7% quarter-on-quarter to 61 mln tn, implying lower utilisations at 71% against 73% year ago, due to sand mining ban in Rajasthan, and Tamil Nadu, cyclones, monsoon in parts of East and South India, and continued political unrest in Andhra Pradesh. As a result, we expect average realization to be down 3.5% YoY and up only 0.5% QoQ to 3,985 rupees per tn. Average EBITDA/tn (earnings before interest, tax, depreciation and amortization) is expected to decline by around 28% YoY/improve 7% QoQ to 630 rupees/tn. With lower than expected volume/pricing uptick in Q3FY14 (Oct-Dec), we cut our FY14-16E EBITDA by 6-10% for companies under our coverage and revise our target prices by rolling over on FY16E.
Stocks of major cement manufacturers are expected to trade in the red next week as, with companies set to detail their Oct-Dec earnings, we see another weak quarter on the back of slow pick-up in demand and low volume off-take. Though Oct-Dec was slightly better than the Jul-Sep quarter, on a year-on-year basis, both, reported revenue and profit numbers would be lower. The mood around cement sector stocks will definitely be grim. There has not been much pick-up in demand for cement despite good monsoons. Also, companies have been trying to keep prices high but have not been successful. Therefore, price realisations were low during Oct-Dec. Average all-India cement realization was down 3.5% on year in Oct-Dec and marginally up quarter-on-quarter. Average prices are likely to be up 1-3% on quarter in central, west and south regions, while average prices are expected to be down 1-2% on quarter in north and east. Industry volumes have grown only 3% on year and 7% quarter-on-quarter to 61 mln tn, implying lower utilisations at 71% against 73% year ago, due to sand mining ban in Rajasthan, and Tamil Nadu, cyclones, monsoon in parts of East and South India, and continued political unrest in Andhra Pradesh. As a result, we expect average realization to be down 3.5% YoY and up only 0.5% QoQ to 3,985 rupees per tn. Average EBITDA/tn (earnings before interest, tax, depreciation and amortization) is expected to decline by around 28% YoY/improve 7% QoQ to 630 rupees/tn. With lower than expected volume/pricing uptick in Q3FY14 (Oct-Dec), we cut our FY14-16E EBITDA by 6-10% for companies under our coverage and revise our target prices by rolling over on FY16E.
