Cement - Sep'12 preview - Benign pricing to boost earnings - Emkay

- Though cement volumes growth for the current quarter remains subdued as reflected by 2.4% yoy growth (-9% qoq) for companies under our coverage

- However cement price movement in 2Q13 remains favorable for cement earnings with shorter period of decline (led by delayed monsoons) leading to 2QFY13 avg cement prices being up 1.4% qoq

- We see large yoy realisation improvement (Except South) as 2Q12 had seen a sharp 7% decline qoq. Companies under our coverage are expected to post realization growth of 18% yoy (+1.6% qoq to Rs4655/t) leading to revenue growth of 22% yoy

- Cost/t is expected to increase 5.1% qoq led by lower volume impacting operating leverages benefits. EBITDA/t at Rs1110/t is expected to improve 69% yoy, but decline 8.4% qoq

- In the current quarter we expect overall EBIDTA to grow 68% yoy but decline 17.6% qoq due to lower volumes. Consequently, we estimate APAT (for cement cos under our coverage) to grow by 111% yoy but decline 24% qoq

- Though the recent 5-7% increase and levy of service tax on rail freight is likely to increase transportation cost, we expected the same to be partially get negated by by 9% yoy decline in international coal prices

- Though cement volumes continue to be cause of concer, with better than expected realizations in the current quarter we could see marginal upgrades in earnings estimates

- Prefer ACC as current high valuations for companies in the sector have left little room for further outperformance for stocks like UTCEM and Ambuja

- Remain positive on Grasim (led by structural change in VSF business) amongst large caps while in mid caps we prefer Shree Cements and Madras Cements (strong volume growth and improving cost structure led by better energy efficiencies)

Source : Equity Bulls

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