Cement stocks have rallied sharply in the last few months and many cement makers have reported good numbers in the March quarter, but this does not mean that the worst is over for the industry.

The strong earnings reported by some companies are due to a temporary demand-supply mismatch in the North. The shutdown of the 6-million-tonne (mt) cement unit of Binani Cement in Rajasthan created a shortage in the region and benefited players such as Shree cements, UltraTech Cement and Ambuja Cements.

Shree Cements posted the highest growth in volumes for the March quarter at 17.7 per cent to 3.8 mt. UltraTech recorded a despatch of 12.2 mt, up 9 per cent. However, ACC that caters to the southern market saw a flat growth in volumes.

The industry as a whole is expected to have recorded less than 3 per cent increase in despatches in this period.

Companies in the North had the benefit of higher prices, too. The supply shortage following the shutdown of Binani’s cement plant stoked prices in the North by almost ₹30 a bag to ₹310 in March. The situation was, however, the opposite in the South.

A steep drop in demand from infrastructure and housing projects in Andhra Pradesh and Tamil Nadu saw players reduce prices. Average prices in the southern region were down ₹15-20 a bag in March (to ₹278 a bag) from end-February. In Andhra Pradesh, too, demand is reported to have dropped sharply.

Cost control Profit margins have, however, improved for cement makers in the quarter. This is thanks, one, to lower coal prices and, two, efforts taken by companies to optimise operating costs.

Ambuja Cements, for instance, reported an EBITDA margin of 22 per cent (versus 21.7 per cent last year). In the December quarter, the company’s margin was only 14 per cent. UltraTech Cement reported an operating margin of 21.8 per cent, up from 16.6 per cent in the December quarter.

However, it was below the number reported in the March quarter last year at 23.8 per cent.

For ACC, however, margins slipped and profits dropped as cement prices fell in the South. The company reported a margin of 14.3 per cent, better sequentially (13.4 per cent), but lower over last year’s margin of 16.9 per cent.

Outlook If the new Government brings in policy changes that turn the tide for infrastructure players through fast-paced project clearances, building of industrial corridors and new airports, the cement sector will see a revival.

For the current high cement prices to hold, demand should revive at least in May and June.

This year the monsoon may be delayed, according to IMD forecasts. So the construction season can extend into June and help cement players.