Cement stocks have underperformed the broader market in the last one month on disappointments over their earnings for the March 2015 quarter. Against the Sensex’s 2 per cent drop since May, Ambuja Cements, Grasim Industries, India Cements, JK Lakshmi Cement and JK Cement have sunk 5-10 per cent.

The shareholding patterns for the March 2015 quarter show that Foreign Portfolio Investors (FPI) have cut their holdings in several cement stocks during the quarter compared to end-December 2014.

In Ambuja Cements , for instance, FPI holding has dropped by over two percentage point to 27.43 per cent. ACC, Grasim Industries, UltraTech Cement, India Cements, The Ramco Cements and JK Lakshmi Cement are other stocks where foreign institutional holding has come down.

Earnings picture

Cement companies have shown a dismal performance in the March quarter. But for a couple of players, most have seen a drop in revenue and profits. The big four players - UltraTech, ACC, Ambuja Cements and Shree Cement - recorded 25-40 per cent drop in net profit led by lower realisation and a drop in sales volume.

While the industry’s despatches during the quarter reported a three per cent growth, year-on-year, not all companies saw their sales volumes go up.

UltraTech, ACC and Ambuja Cements reported about 3-10 per cent drop in despatches. The slowdown in demand from rural India, poor offtake in infrastructure projects and the unseasonal rains in February and March in many parts of northern India have hit cement demand.

South-based India Cements and The Ramco Cements did better than their peers in the North, supported by better realisations (20-25 per cent, year-on-year) and cost savings that buttressed the margins.

The Ramco Cements recorded a 273 per cent jump in profits. India Cements returned to profit from a loss last year. However, both companies saw a steep 16-20 per cent decline in sales volumes as the retail demand was dismal.

Shree Cements was an outlier on despatches front. It recorded a good 7.5 per cent growth in sales volumes, thanks to capacity addition. But weak realisations led to both revenues and profits being down relative to last year; profit margins came under pressure as well. The power segment too didn’t fare too well on lower demand for merchant power.

Outlook

Rural housing makes for about 40 per cent of the total cement demand. If rural wages and agriculture income come down because of the poor monsoons this year, it will be negative for cement manufacturers. However, a better infrastructure demand with road projects now kicking off and a pick-up in urban housing, demand may offer some growth.

Southern cement players may see some relief if new infrastructure development in Seemandhra and Telangana progresses well and cement demand therefore gather steam.

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