Cement firms to see strong Q2, volumes to be ‘pain point’: Report

Domestic cement players are expected to report healthy earnings in the second quarter of this fiscal on account of higher prices and inventory of low cost fuel, says a report.

According to Kotak Institutional Equities, while cement prices would have remained firm for the three months ended September, this year, volumes are likely to be “the pain point” with the industry likely to slip to 2 per cent in terms of volumes on year-on-year basis.

“Cement companies will continue to report healthy EBITDA (earnings before interest, taxes, depreciation, and amortisation)/ton (35 per cent year-on-year) benefiting from strong cement prices as well as inventory of low cost fuel,” the report said.

“Volume trajectory will, however, be less exciting as a heavy monsoon would likely contain overall construction activity,” it added. 

North-based players such as JK Cement, JK Lakshmi and Shree Cement will continue to report stronger earnings growth compared to those in other parts, even as players in Southern region of the country would bear the brunt of a weak price trajectory. Cement volume growth moderated to 2 per cent y-o-y for July-August 2016 from 5.6 per cent in first quarter of 2015-16. 

“Accordingly, we build in lower volume growth for the quarter but highlight that certain companies will report double-digit growth in volumes due to expanded capacities,” the report noted.

Orient is expected to witness a 30 per cent growth and Shree Cement 17 per cent rise year-on-year.

Pan-India players Ultratech (4 per cent), ACC (2 per cent) and Ambuja (1 per cent) will report low single-digit growth in volumes, the report said.