Two southern cement firms suggest stable outlook

The earnings of Madras Cements (MCL) and India Cements (ICL) suggest an improving outlook. After several months of tardy growth, cement prices in the south were relatively stable in the December quarter. In fact, stable demand in the absence of heavy monsoon that usually plays havoc in the south during the quarter, helped lift volumes and realisation per bag of cement sold.

The two southern cement duo-MCL and ICL clocked revenue growth of 18 per cent and 17 per cent respectively, when compared with a year before. MCL may have posted a better performance, but for the dealer strike in Kerala for two weeks in November.

The southern firms fared better than their western counterparts such as ACC and Ambuja Cements, as sluggish demand and cost pressures hit the profitability of cement makers focused on western Indian markets. Cost increases were felt by both south-based companies during the December quarter, as freight rates surged.

Transport and handling charges rose by 35-38% from a year ago and marginally from the preceding quarter. As a result, ICL and MCL posted a slight decline in operating profit from a year ago.

According to Karvy Stock Broking, ICL’s operating performance should improve given its ramp up in captive power production and benefits accruing from coal sourced from captive mines in Indonesia. Barring those in Andhra Pradesh, cement dealers in the south endorse stable demand.

A few weeks ago, leading cement maker Heidelberg indicated a possible hike in cement prices in southern markets, too, after a similar move in the west. This augurs well as better realisation could offset rising costs.