Companies & Sectors
Cement firms’ earnings expected to be under pressure in FY12

Higher input costs are eating into margins of companies and cement makers will be particularly hurt by a demand-supply gap, analysts suggest

Indian cement companies' earnings will remain under pressure through the financial year 2011-12, on account of over-capacity, weak realisations and rising input costs, according to industry analysts.

"The cement sector faces an oversupply situation. The demand-supply gap is likely to remain significant, despite expected double-digital growth in FY12," Novonil Guha and Gurpreet Kaur, analysts with BRICS Securities, said in a report. "Cement prices should remain volatile as production arrangements among players are not likely to sustain over the medium term. This would mean uncertainty in cement earnings till FY13."

CRISIL researchers point to rising input costs that would likely eat into the margins of Indian companies in the current fiscal, and cement, shipping, real estate and textiles will witness a sharp decline in profitability.

Prices of imported coal have increased by around 30% to $141 per tonne compared with $110 per tonne in the corresponding period last year. While domestic coal prices have also surged by almost 150%. The impact of surging input costs, lower realisation, oversupply and depressed demand was evident in the fourth quarter results of cement companies.

On Tuesday, ACC, one of the country's largest cement producers, reported that consolidated net profit for the January-March quarter declined by 11% to Rs350 crore, against Rs393 crore in the year ago period, mainly due to high input costs. However, volumes increased to 6.16 million tonnes in the quarter from 5.58 million tonnes in the year-ago period.

Ambuja Cement also reported a 12% decline in net profit to Rs407 crore from Rs462 crore a year ago, while net sales stood at Rs2,207 crore, an increase of 11% from Rs1,990 crore a year earlier. In contrast, UltraTech Cement's net profit rose 218% to Rs727 crore in the January-March 2011 period, compared to Rs228 crore in the previous corresponding quarter, while net sales  surged 135% to Rs4,490 crore from Rs1,909 crore.

The decline in the margins is attributed to depressed demand, lower utilisation rates, and high supply. "FY11 recorded industry demand growth of 5.3%, the lowest in the last ten years," UltraTech said in a statement. "This was primarily on account of de-growth in various key cement consuming states, driven by lower infrastructure spending, a slowdown in the realty sector, an extended monsoon and non-availability of railway wagons."

The cement industry has seen around 80 million tonnes of fresh capacity addition in the last two years and that has led to lower capacity utilisation in past year. According to BRICS analysts the capacity utilisation is likely to be 77% and 85% in FY12 and FY13, respectively.

Oversupply in the market will put pressure on cement prices. Though cement makers adopt the supply discipline strategy to hold prices, it would not sustain over the long term, the analysts said. "The pricing environment may remain challenging and with the impact of surplus capacity, margins may continue to remain under pressure," UltraTech stated.

However, there is also a view that demand in the current fiscal could see an upward momentum as it is the final year of the Eleventh Plan, so infrastructure projects are likely to get some acceleration. "The cement industry is likely to grow more than 8.5% on the back of government initiatives in rural development, infrastructure and housing," UltraTech said.


BEL sales turnover touches Rs5,550 crore

Defence PSU Bharat Electronics (BEL) sales turnover has increased to Rs 5,550 in 2010-11 (provisional) from Rs 5,220 crore in 2009-10, registering a growth of 6.3 per cent

Defence PSU Bharat Electronics (BEL) today said its sales turnover has increased to Rs 5,550 in 2010-11 (provisional) from Rs 5,220 crore in 2009-10, registering a growth of 6.3 per cent.

The estimated profit before tax is at Rs 1,120 crore as against Rs 1,045 crore in 2009-10, BEL Chairman and Managing Director, Mr Ashwani Kumar Datt said, adding, the audited results were still awaited.

The PSU registered a growth of 77 per cent in its exports turnover from $23.65 million in 2009-10 to $41.89 million during 2010-11, he told media, after announcing the company's performance highlights during the year.

"Exports did better than targeted", he said.

All units continued to achieve profits, he said. BEL's order book grew from Rs 11,350 crore to Rs 23,600 crore as on April 1, 2011.

Supplies to defence contributed to 80 per cent of the turnover. The turnover from indigenously developed products was 78 per cent, he said.
Weapon Systems on account of Akash contributed to 4 per cent of the turnover and the segment was expected to grow in future. Communication contributed to 18 per cent, he added.

The new products for the year included Akash weapon system, Humsa-NG, Semi Ruggedised Automatic Exchange, Lower Power Jammer, Instant Fire Detection and Suppression System and Mobile Communication Terminal.

Talking about its export orders, he said BEL has an export order book of $66.36 million, including offset order of $42.28 million. The export target for 2011-12 is $47 million, he said.Mr Datt said the company is aiming to reach a turnover of Rs 6,200 crore during 2011-12.

It would work strategically on important projects like Akash weapon system for Indian army, Lightweight Portable Radar, Battlefield Surveillance System. "BEL is aiming to achieve increased growth in offset business exports", he said.

It is looking at diversifying into new areas of defence and civil segments and giving thrust to in-house development and strengthening its R&D capabilities.
BEL is in discussion with a reputed foreign OEM on forming an Indian JV in the area of civilian radars and select defence radars, he said.

The plans for setting up a JVC with BHEL for manufacturing solar PV wafers, cells and modules have been finalised. Both the companies are in the process of obtaining approvals from their respective boards, Mr Datt said.

BEL is working on establishing a company for the design, development and manufacture of RF and microwave components and subsystems, he added.
On Wednesday, BEL ended 0.17% up at Rs1,828.90 on the Bombay Stock Exchange, while the benchmark Sensex declined 0.49% to 19,448.69.


Swaraj Engines Q4 net profit rises 20%

Swaraj Engines reported 20.20% rise in its net profit for the quarter ended 31 March 2011, at Rs11.07 crore

Swaraj Engines today reported 20.20% rise in its net profit for the quarter ended 31 March 2011, at Rs11.07 crore.

The company had posted a net profit of Rs9.21 crore in the corresponding period last year, Swaraj Engines said in a filing to the Bombay Stock Exchange (BSE).

The total operating income during the fourth quarter of last fiscal increased by 26.94% to Rs 96.93 crore from Rs 76.36 crore in the year-ago period, it added.

For the entire 2010-11 financial year, Swaraj Engines' net profit rose by 17.56% to Rs 43.91 crore from Rs 37.35 crore in the previous fiscal.

The total operating income during last fiscal stood at Rs 360.63 crore as against Rs 282.44 crore in 2009-10, up 27.68%, the filing said.

The board of the company recommended a 100% dividend, which is Rs 10 per equity share on face value of Rs 10 each.

On Wednesday, Swaraj Engines ended 2.60% down at Rs456.30 on the Bombay Stock Exchange, while the benchmark Sensex declined 0.49% to 19,448.69.


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