Nomura Research and Sharekhan describe strong recovery in profitability in January-March 2011; point to correction on reduced demand as peak season closes
Indian cement companies are expected to register a strong recovery in profitability in the fourth quarter of FY2010-11 on the back of surging prices, but they could face a tough time going ahead as the peak season is about to end and a price correction is around the corner, according to Nomura Equity Research.
The slow demand and a correction in prices would curtail any significant stock price performance post the results, the research firm says in a recent report. "It's been a mixed quarter for the Indian cement industry, with volume growth remaining sluggish, but price increases out-doing cost escalations. As a result, we think profitability looks set to improve substantially, given the high sensitivity of realisations to profitability," Nomura said.
Cement companies are expected to register a volume growth of 6% in the March quarter, compared to 4% and 3% in the previous two quarters. However, overall volume growth for FY11 would be around 5%, among the lowest in recent years.
The lower growth is attributed to lower than expected spending on infrastructure projects and a slowdown in the real estate sector, Sharekhan, another brokerage, said in a report. The volumes of companies operating in the southern region are also likely to decline, it said.
Cement producers were under tremendous pressure on account of oversupply in the market. But in the March-end quarter, discipline in production and a rise in demand pushed prices up by around 10% from that in the previous quarter. All India cement prices are at around Rs250 a 50-kg bag.
During the January-March quarter, all India cement prices went up to Rs285 a bag, compared to Rs225 a bag in the previous quarter. Since the beginning of April, however, prices have corrected by around Rs5 to Rs10 per bag.
The largest price escalation was observed in the north and east, followed by the west, while the price trend in the south was mixed, Sharekhan reported.
In January-March period, the Moneylife Cement Index remained flat, even as the benchmark Sensex dropped by 5%. Major cement stocks improved marginally in the fourth quarter. Ultratech Cement, Ambuja Cement and Shree Cement were top performers, gaining by 4%, 3% and 3%, respectively. ACC Ltd and Heidelberg Cement India remained flat.
Watch whether today's lows are breached on Monday
Nervousness ahead of Infosys' quarterly results and inflation numbers for March led to a lower opening for the Indian market, which resumed trade after a day's break yesterday. The Sensex was 27 points down to 19,670 and the Nifty shaved off 12 points from its previous close to open at 5,899. Staying in the red, the indices touched the day's high in initial trade with the Sensex rising to 19,701 and the Nifty to 5,907.
Lower-than-expected quarterly results from IT giant Infosys Technologies early in the day pushed the market further sharply southwards. The key barometers fell to 19,477 and 5,851, respectively. A marginal pull-back was observed later and the market was range-bound till the release of the headline inflation numbers for March. A nearly half a percent rise in the inflation figure to 8.98% from the previous month put further pressure on the market taking the indices to their intra-day lows. At the day's low, the Sensex tumbled 360 points to 19,337 and the Nifty fell 105 points to 5,806. The Sensex was 310 points down at 19,387 and the Nifty lost 87 points to 5,825. The advance decline on the National Stock Exchange was 518:886. Despite today's fall, the market is not signalling a new downturn. Watch whether today's lows are breached on Monday which will signal further weakness
The broader indices were better off than the Sensex with the BSE Mid-cap index settling 0.20% down and the BSE Small-cap index declining 0.17%.
Dogged by Infosys' lacklustre quarterly performance the BSE IT index (down 6.40%) was the top loser today. It was followed by BSE TECk (down 4.78%), BSE Realty (down 1.22%), BSE Bankex (down 0.95%) and BSE Power (down 0.87%). On the other hand, BSE Auto (up 0.12%), BSE Capital Goods (up 0.10%) and BSE Consumer Durables (up 0.09%) were the sectoral gainers.
Hero Honda (up 5.52%), Bharti Airtel (up 1.35%), Bajaj Auto (up 1.06%), Jaiprakash Associates (up 0.92%) and ITC (up 0.79%) were the top Sensex gainers. Infosys Technologies (down 9.59%) was the top loser today. Other major losers were Wipro (down 5.04%), DLF (down 2.43%), ICICI Bank (down 2.37%) and Hindustan Unilever (down 1.83%).
High prices of vegetables and manufactured items drove the headline inflation in March to 8.98%, way above the Reserve Bank of India's (RBI) expectation of 8% and higher than the 8.31% reading in February. Besides, food inflation, which accounts for nearly 15% of overall the WPI inflation, stood at 8.28% for the week ended 2nd April.
The rise in overall inflation for the second month in a row may prompt the central bank to go for another round of policy rate hikes in its policy review meeting, scheduled for 3rd May.
Most markets in Asia settled lower on Chinese inflation data, which enhanced concerns about rate hiked by the country's central bank once again. China's March CPI (consumer price index) rose 5.4% from a year earlier, above the 4.9% rise in February, the fastest inflation rate since July 2008. That apart, first-quarter gross domestic product (GDP) rose 9.7% on-year, down marginally from the 9.8% expansion in the fourth quarter of 2010.
The South Korean benchmark, which had touched an all-time high on Thursday, ended lower on profit booking. Fears of further policy tightening in China also hurt the Hong Kong market which settled in the red.
Overall, the Hang Seng shed 0.02%, the KLSE Composite declined 0.25%, the Nikkei 225 slid 0.65%, the Straits Times was down 0.18%, the Seoul Composite fell by 0.03% and the Taiwan Weighted tanked 0.96%. On the other hand, the Shanghai Composite gained 0.27% and the Jakarta Composite climbed 0.61%.
Back home, institutional investors' participation was lacking on Wednesday. Foreign institutional investors pumped in a meagre Rs25.60 crore in the equities segment while domestic institutional investors pulled out Rs 4.80 crore.
Ahluwalia Contracts (India) (up 1.83%) has secured new orders totalling around Rs 535 crore in the fourth quarter of 2010-11 for construction related projects. The company received orders aggregating Rs 141.50 crore and Rs 184 crore for construction of residential and commercial buildings. Further, it has secured orders worth Rs 142.18 crore for construction of hotels and Rs 34 crore for construction of institutional buildings. Also, orders worth Rs 33.02 crore were bagged in services segment.
Pennar Industries' (down 1.28%) subsidiary Pennar Engineered Building Systems (PEBS) has bagged an order from Larsen & Toubro for the first phase of construction of pre-engineered steel buildings for Chennai Metro Railway. This order involves design and construction of the workshop buildings, stabling yard and the infrastructure shed to be set up at Koyambedu in Chennai city.
Oracle Financial Services Software (down 2.20%) has informed that Colombia-based Helm Bank has selected Oracle software and hardware to run its core banking, customer-facing services and marketing functions. Helm Bank's platform includes Oracle FLEXCUBE Universal Banking running on Oracle Exadata Database Machine which delivers extreme performance.
Sources in the government said that "nothing big" can be expected in the first meeting of the committee comprising government and civil society representatives but voiced hope that ice will melt after three or four rounds
New Delhi: On the eve of the maiden meeting of the 10-member joint committee tomorrow to draft the Lokpal Bill, the government today said it has an open mind on the issue, reports PTI.
"The meeting is taking place tomorrow. We are going there with an open mind. The government, civil society and common people-all have one target that there should be greater transparency and responsibilities should be clearly fixed in the Bill," minority affairs minister Salman Khurshid, who is on the panel, told reporters here.
His statement came a day after activist and committee co-chairman Anna Hazare said that the bill proposed by the civil society will not cover higher judiciary and that their representatives in the drafting committee would be "flexible".
"When we take the Bill before Parliament, it should be endorsed and passed," Mr Khurshid said here on the sidelines of a function to kick-start online registration for scholarship programmes for minorities.
Sources in the government said that "nothing big" can be expected in the first meeting of the committee comprising government and civil society representatives but voiced hope that ice will melt after three or four rounds.
Asked whether the government will concede demands that MPs should also be allowed to give their suggestions to the committee, Mr Khurshid said, "Nobody has stopped anybody from airing his views."
The minister also disapproved of political parties raking up issues related to the proposed Bill, saying it would be better if comments are made only after an outline on the Bill emerges.
"Otherwise if we keep on discussing in the meeting who said what, I do not think this is going to make the main job any easier," he said.
Mr Khurshid also dismissed suggestions that the government "surrendered" before the civil rights activists by agreeing to the joint committee after an agitation led by Mr Hazare who went on an hunger strike to press their demand for wider powers to the ombudsman to check corruption.
He parried a question on whether the alleged underpayment of stamp duty by lawyer Shanti Bhushan for his house in Allahabad was not ironical as he is now part of a committee to draft an anti-corruption bill.
"This is not a comprehensive MRI scan on whole body for each one of us.... All of us are subject to public scrutiny, public pronouncements and public judgements. If you are in public life and do anything which is associated with public institutions then you have to be willing and ready for it.
"Lawyers know this more than the rest. Let public scrutiny happen. But today the job is something else. It has nothing to do with income tax, our fight with an individual or our personal feelings. Today we have to see what we can find as a best solution, which is acceptable to all," Mr Khurshid said.
Advocate Prashant Bhushan, meanwhile, has rubbished news reports regarding alleged evasion of stamp duty to the government in the registration of the sale deed for the plot and the house.
"Far from it, we ourselves have approached the appropriate authority for determination of the stamp duty to be paid to the government for registration of the sale deed for the plot and the building," he told PTI.
To repeated questions on whether Shanti Bhushan and his son Prashant should withdraw themselves from the committee, Mr Khurshid said, "Our Cabinet has taken a decision that this group of ten persons chaired by senior leader Pranab Mukherjee will try to find a solution to it. I should not say anything beyond this."
Mr Khurshid added that the focus of the committee is to find the best way in which corruption in high places can be effectively tackled.
"Civil society coming with this proposal (for a joint committee) is just the beginning towards an end. I do not think anyone believes that the struggle and the fight against corruption is an easy and simple thing. It's complicated and long drawn out thing and we are making some movement forward.
"Congress president has given us some ideological direction. Prime minister has given to this country very serious commitment and we have been told you have to find a reasonable solution, which is acceptable to people at large," Mr Khurshid said.