'Cement cos Q3 earnings may dip on dismal pricing environment'

A delay in capex revival along with dismal pricing environment is likely to affect performance of cement companies in the third-quarter of this fiscal, says a report. "Cement companies are likely to witness a muted growth in y-o-y earnings. The performance of cement companies is likely to be affected in December 2015 quarter due to delay in capex revival along with dismal pricing environment," a Reliance Securities report said.

Average volume growth is expected to the tune of 6 percent year-on-year mainly led by volume push, whereas average realisations are down by 1 per cent y-o-y and 2 per cent on q-o-q basis. Notably, softened fuel and input prices are likely to arrest margin erosion from realisations dip as operating cost/tonne is expected to decline by 3 per cent y-o-y, the report said. Companies having substantial exposure in eastern, western and central regions are likely to report maximum deterioration in operating margins as realisations in these regions have witnessed an average yearly decline of 4-6 percent y-o-y.

"We foresee FY17 would be better for cement companies mainly on account of low base of volume growth, realisations recovery, expected pickup in construction activities in the busy season and possible pickup in rural consumption," it said. The report said that the demand environment remained tepid. Demand scenario remained abysmal and it could not see a convincing bounce back post the seasonal overhang owing to impediments to private investments and decelerating rural demand.

"Cement companies under our coverage have witnessed an average volume growth of 6 per cent mainly led by new capacity and volume push," it said.