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Cement cos’ profitability may improve by up to 22% in Q4

The profitability of cement producers is set to increase 18-22% sequentially in the March quarter as they benefit from volume growth and a fall in input costs even as prices remained subdued, analysts said.

The operating profit of cement companies is likely to increase ₹150-200 per tonne to ₹900-1,000, according to estimates. It will be the second consecutive quarter of improvement in operating margins for cement makers. “Companies will benefit because the cost of fuel is expected to be lower by about ₹150 per tonne, which leads to a drop in variable costs,” said Navin Sahadeo, director, Nuvama Institutional Equities.

While fuel prices started declining in the previous quarter, companies will get this benefit with a lag because they were using high-cost inventory. The cost of fuel is about 22-25% of operating costs on average for cement firms.

The March quarter is also traditionally the strongest for cement companies in India because of demand from the construction and infrastructure segments, and analysts expect this trend to play out this time as well, anticipating a volume growth of about 8-10% sequentially.

The volume growth will also be conducive in shoring up the operating profit as it lowers fixed costs, analysts said. The March quarter accounts for 27-35% of the cement sold during a year.

“While there have been two attempts to raise prices, one of which was in February, these had to be rolled back… as a result, the average hike in prices as compared to the end of the December quarter would only be around ₹5 per bag,” said Mangesh Bhadang, senior vice president, Centrum Broking.

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