Higher coal and fuel costs are likely to impact overall performance despite an improvement in realisation.

The recently concluded quarter saw stocks of frontline cement companies – ACC, Gujarat Ambuja and UltraTech Cement – rise between 8 – 20 per cent at the bourses as compared to 6.1 per cent fall in the Sensex. The rise comes on the back of a hope of improvement in realisation as cement prices remained firm.

Average cement prices during the December quarter stood at Rs 268 a bag, as compared to Rs 247 a bag in the September 2011 quarter. Region-wise, north, east and central India saw major hikes of Rs 27, Rs 34 and Rs 23 per bag respectively. South India, however, saw a lower hike of Rs 10 a bag and the western region witnessed a hike of Rs 7 per bag.

However, higher coal prices could dent the overall performance. “Cement companies are expected to face margin pressures due to higher y-o-y power and fuel costs due to increased domestic and international coal prices and the rupee depreciation," states an Angel Broking report.

Ambuja Cement predominantly being a player in the northern region is expected to see its realisation improve by 8 per cent sequentially to Rs 4,100 per tonne as per analysts at PINC Research. An improvement in capacity utilisation to 81.3 per cent and stabilisation of capacities added earlier helped dispatches grow 11 per cent year-on-year (16.5 per cent sequentially) in the December 2011 to 5.54 million tonne (MT).

With a significant presence in the northern and the central regions, ACC saw the biggest price hikes and is expected to witness a 6 per cent sequential growth in realisation to Rs 4,000 a metric tonne as per PINC reports. The company had seen significant volume growth during the January – September 2011 over a low base during the year ago period.

However, the impact of higher coal costs for the company that is dependent on procuring coal through linkages and e-auctions is likely to impact overall performance. This, however, will be compensated by higher realisation, analysts say. The company gained 13.3 per cent on the bourses during the quarter.

THE ROAD AHEAD

In their result preview report, analysts at Motilal Oswal (MOSL) suggest that the demand is likely to improve from March 2012 quarter onwards. They estimate that volume growth of 7.3 per cent for the sector translates into 75.5 per cent capacity utilisations in FY12, as against 77 per cent in FY11.

“During FY13, higher realisations also will dilute cost inflationary impact due to higher energy cost and rail freight improvement driving EBIDTA per ton for the sector by Rs 200 a ton sequentially and Rs 300 a ton year-on-year to Rs 813 a ton," states the MOSL report.

“We expect full year demand to grow by nearly 6 per cent during FY12 led by revival in construction activity. We also expect cement demand to recover by 10 per cent during FY13 subject to sustained recovery in the infrastructure and real estate sector. However, we believe that this growth would still not be sufficient to absorb higher supplies," notes a Kotak Securities report.

As per Bloomberg data, the one-year consensus target price for ACC, Ambuja stands at Rs 1082 and Rs 172, respectively.