Cement - Dull quarter; brighter times ahead - Anand Rathi

We expect 3QFY13 sales of our coverage to grow 3% yoy (down from 20% in 1H), driven by 4% realisation growth; volumes could dip 1%. We expect average OPM to dip 120bps yoy and net profit to be down 16% yoy (53% growth in 1H) due to tax credits. PBT will decline only 1%. Expansion plans and cement price outlook are key monitorables.

- Revenue growth led by higher realisations. In 3QFY13, we expect our cement coverage universe to post 3% aggregate revenue growth (dipping 1% qoq), led by 4% yoy realisation growth (slipping 3% qoq). Aggregate volume growth is expected to be down 1% yoy (up 2% qoq) partly due to the high-base effect (10% yoy growth in 3QFY12).

- EBITDA margins to dip yoy and qoq. We expect EBITDA margins to fall 120bps yoy (310bps qoq), leading to a 3% yoy EBITDA dip (15% qoq). Average EBITDA/ton is expected at Rs.830 (Rs.1,000 in the previous quarter andRs.850 in the year-ago quarter). Higher freight costs (diesel hike) and lower volumes would negate gains from higher cement prices.

- PBT/PAT to dip 1%/16% yoy. Aggregate PBT would be down 1% yoy (18% qoq). However, due to tax credits in 3QFY12, PAT is expected to be down 16% yoy (18% qoq). Ambuja/Shree in large caps could outperform with 20%/160% yoy PBT increase, while India Cements/Madras Cements may underperform with 55%/22% yoy dips.

- Our take. Key positives: 1) Upswing in utilisation rates led by limited capacity additions; 2) strong pricing power; and 3) modest cost rises. We expect the recent stock-specific outperformance to continue. Top picks: ACC, JK Cement, Orient Paper.

Source : Equity Bulls

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