India Cements: investors could consider on long-term basis

Chennai-based India Cements is a leading player in southern India and has benefited from strong cement prices, given production discipline amongst local producers over the past few quarters. Consequently, total cement dispatches in the southern region grew just 1.8% YoY during FY12, and the pace was much slower than the all-India growth during this period, Point Out brokerage house reports.

India Cements has recently diversified its presence into northern markets. Its subsidiary Trinetra Cement commenced commercial production from its Rajasthan facilities in January 2011. India Cements' capacity was 14.05Mt at the end of March 2011, a rise of 59.5% from three years earlier.

With the peak construction season underway, cement prices have been broadly strong in the company's key markets. However, input costs like freight and coal prices at elevated levels remain a cause for concern for the wider sector. In the first week of March, Railways introduced new freight rates, which could push up costs by nearly 20% for cement companies, say analysts.

But buoyant realisations have helped India Cements to deal with higher input prices over the past few quarters. India Cements' realisations improved nearly 12% YoY on a per tonne basis to INR4320 in the third quarter of FY12, while dispatches grew 7.1% during this period. As a result, the operating profit margin improved 440 basis points YoY to 20.8% in the December 2011 quarter, while total operating income rose 20.5%.