Cement sector Q3FY13 earnings estimates: P Lilladher

Prabhudas Lilladher has come out with its earnings estimates on cement sector for December quarter FY13. "We have been structurally positive on the earnings quality of the sector, driven by maturity demonstrated by the manufacturers. However, we remain uncomfortable on the Top-3 players, UltraTech Cement (UTCEM), ACC and Ambuja Cement," reports said.

Prabhudas Lilladher Q3FY13 earning estimates for cement sector

According to the data from the office of the Economic Adviser to the Ministry of Commerce and Industry, all-India cement production increased by 3.4% YoY to 38.5m tonnes during October-November 2012. Activity was impacted due to strong activity in the last quarter and general weakness in demand. Our interactions with companies suggest marginal growth of 3-4% in the month of December on the back of high base of 13.6% growth. Hence, we expect all-India production to close the quarter with growth of 3.7% v/s 9.8% growth in Q3FY12.

All India cement price fell ~5% or Rs16/bag QoQ to Rs 295 during the quarter on the back of abnormally high prices in monsoon season and tepid demand. On YoY basis, the average stands higher by 7% or Rs20/bag. Central and Western region witnessed the highest price decline to the tune of ~Rs20 and Rs16/bag QoQ during the quarter, with an average price of Rs265 and Rs278, respectively. Prices in the Northern region fell by Rs15/bag, with an average price level of Rs270 for the quarter. Prices in the Eastern region declined Rs13/bag at Rs315 on the back of weakness in Bihar and Orissa. Southern region attracted the lowest fall of Rs5/bag at Rs310 on the back of continued industry discipline. 

We have been structurally positive on the earnings quality of the sector, driven by maturity demonstrated by the manufacturers. However, we remain uncomfortable on the Top-3 players, UltraTech Cement (UTCEM), ACC and Ambuja Cement (ACEM), given their expensive valuations at EV/EBITDA of 8.8-9x and P/E of 16x FY14E. We continue to like Shree Cement, given its strong earnings profile, attractive valuations (EV/EBITDA at 6.3x FY14E) and presence in well-placed regions.

Summary Financials ‐ Quarterly

Rs (mn)

Company	Q3FY13E	Q3FY12	% YoY	Q2FY13	QoQ
UltraTech Cement
Sales	47,214	45,681	3.4	46,996	0.5
EBITDA	9,095	9,646	-5.7	10,074	-9.7
Margins	(%)	19.3	21.1	21.4	22.1
PAT	4,953	5,695	-13	5,500	-10
Ambuja Cement*
Sales	23,563	23,363	0.9	21,684	8.7
EBITDA	4,782	4,282	11.7	5,650	-15.4
Margins	(%)	20.3	18.3	26.1	26.5
PAT	3,031	2,594	16.9	3,040	-0.3
ACC*
Sales	27,067	26,474	2.2	25,559	5.9
EBITDA	3,340	3,863	-13.5	4,357	-23.3
Margins(%)	12.3	14.6	17	19.5	16.9
PAT	2,651	2,352	12.7	2,420	9.6
Shree Cement#
Sales	13,506	12,586	7.3	13,230	2.1
EBITDA	3,650	3,320	9.9	3,930	-7.1
Margins(%)	27	26.4	29.7	28.4	25.2
PAT	2,072	592	249.9	2,288	-9.5

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