Cement
Stocks Outlook for the week (09 - 13.07.2012)
Stocks of leading cement
companies are seen gaining in the next five sessions on expectations of strong
earnings in Apr-Jun. Most cement makers will announce June quarter
earnings later this month. We expect Q1FY13 (Apr-Jun) to be yet another
strong quarter for cement companies. Accordingly, the top 3 cement stocks have
outperformed broad indices by 45-75% year-on-year. Cement demand across the
country remained strong during Apr-Jun, which led companies to keep prices at
elevated levels. This will help cement makers to post robust operating profit
margins for the quarter. Earnings before interest tax depreciation
amortisation per tonne is expected to increase both year-on-year and
quarter-on-quarter. Average all-India cement prices are expected to be higher
by 11% YoY and 5.5% QoQ, while average cost per tonne is likely to be up 8-9%
YoY and 4% QoQ.
We expect sales volumes for
the industry to have risen around 9.5% year-on-year in Apr-Jun, mainly due to a
low base effect. On the back of this positive sentiment, stocks of most
cement companies have been trading positive for the past three weeks, despite
the Competition Commission of India levying hefty penalties on 11 companies
found guilty of cartelisation. The companies found guilty were UltraTech
Cement, ACC, Ambuja Cements, India Cements, Madras Cements, Lafarge India , Jaypee
Cements, Century Cement, Binani Cement, JK Cement, and Grasim Cements which has
merged with Ultratech Cement. The companies have been penalised 50% of their
respective net profit for financial years 2009-10 (Apr-Mar) and
2010-11. The impact of this order is unlikely to be seen in the near-term
as most companies have decided to challenge the order in the Competition
Appellate Tribunal.
Seasonally, news flow regarding
volumes and pricing is likely to weaken owing to onset of monsoon. However,
structurally, we remain positive on the sector as we expect utilisations and
prices, hence margins, to trend upward year-on-year.
, pred� m e � @ rojection of only moderate improvement in RIL's refining margin and a
bottoming out of petrochemical margins.er} � e � @ headroom for upside potential following the recent rally in the stock.
