Cement scrips slipped on Monday on concerns over the bottom-line growth of companies in this sector.
ACC was the biggest loser among cement pivotals in afternoon trades (down 0.85% to Rs 151.85). Gujarat Ambuja (down 0.51% to Rs 164.85), L&T (down 0.47% to Rs 202.10) and Grasim Industries (down 0.29% to Rs 312.75) were the other cement scrips that lost ground.
Dealers said the dismal DQ 2002 results of ACC has taken its toll on stocks of other cement firms. Analysts said that till cement prices witness a sustained rise, the profitability of cement firms may remain weak. They said the demand for cement is expected to rise due to the boom in housing, road construction and infrastructure activities, but till cement production is not curbed to sustain cement prices at higher levels, profitability of companies in this sector may not improve. Also, profitability of cement makers is directly dependent on a rise in realisations. As a consequence, firm cement prices are vital to the industry.
The cement supply overhang, meanwhile, is expected to continue. In the current month, Sanghi Industries was expected to commence cement production, but it has postponed it to March 2003. If Sanghi Industries starts production, the supply overhang situation will worsen, which may pull down cement prices.
On Friday, ACC announced its third quarter (Q3) results (ended 31 December 2002). The company posted a 19.4% rise in net profit to Rs 20.21 crore as compared to Rs 16.93 crore in the corresponding period of the previous year. However, sales declined by 3.06% to Rs 682.28 crore (Rs 6.82 billion) from Rs 703.86 crore (Rs 7.03 billion) in DQ 2001. Both sales as well as net profit fell below analysts' expectations. A capitalmarket.com poll of six cement analysts had projected a net profit growth in the range of 20.5-135.2% at Rs 20.5-40 crore. Net sales were projected between Rs 694 crore (Rs 6.94 billion) and Rs 734 crore (Rs 7.34 billion), a growth of negative 1.4% to positive 4.3%.
Analysts said that ACC's Q3 results were poor. The rise in net profit is mainly due to the extra-ordinary income (EO) of Rs 15.35 crore (Rs 0.14 crore), they said, adding that if the EO is deducted than the net profit shows a huge drop of 71% at Rs 4.86 crore.
In December 2002, the cement industry registered a 13.9% rise in dispatches to 9.51 million tonnes from 8.35 million tonnes in the same month a year earlier. Production rose by 17.6% to 9.69 million tonnes from 8.24 million tonnes a year ago.