Q4FY2009 Cement earnings preview

* Driven by strong dispatches in January and February 2009, the total dispatches for Q4FY2009 are estimated at 49.9 million metric tonne (MMT), higher than that of 46MMT in the same quarter of the last year (Q4FY2008). However, the capacity during the same period has increased by 15.8% to 51.9MMT, which is expected to pull down the utilisation ratio to 96% in Q4FY2009 from 102% in Q4FY2008.

*Overall, the Sharekhan’s cement universe is expected to register a 7.6% growth in volumes in Q4FY2009. Shree Cement, Ultratech Cement and Orient Paper & Industries Ltd (OPIL) are likely to report an impressive volume growth of 13.4%, 9.9% and 13.1% respectively in Q4FY2009.

* In terms of top line, the Sharekhan’s cement universe is likely to register an 11.9% growth in revenues. Madras Cement, Ultratech Cement, Shree Cement and OPIL are expected to post impressive sales growth of 20.3%, 20.1%, 15.3% and 12.4% respectively due to strong demand in northern and southern regions and capacity addition carried out by the aforesaid cement companies.

* In terms of realisation, all the companies have raised cement prices during the quarter due to a strong demand and supply shortage in some areas. In terms of price hike, companies operating in the eastern region have benefited the most. The south-based companies are fetching healthy realisation compared to companies operating in other regions. During the quarter on an all India level, the average cement price has gone up by Rs15-20 per bag of 50 kg.

* The adjusted profit after tax (PAT) of the companies under the Sharekhan’s cement universe is expected to decline by 5.6% which is on the back of downfall in the operating profit margin (OPM). The OPM is expected to decline in the range of 331 basis points to 466 basis points. Moreover, the sharp increase in the interest and depreciation charges due to capacity expansion will have an adverse impact on the bottom line of the companies.