Ramco Industries which announced its result for the quarter ended June 2010 result, posted excellent operating performance during the quarter. Although the top-line marginally fell 2% to Rs 148.41 crore, the OPM improved considerably by 235 bps to 23.08% on a year-on-year basis. The resultant absolute operating profit rose 9% to Rs 34.25 crore. Significant reduction in interest cost and the depreciation allowance helped the company to post impressive bottom-line growth of 33% to Rs 20.71 crore during the quarter under review.

Indian Hume Pipe also witnessed impressive performance with a top-line growth of 23% to Rs 155.08 crore during the quarter ended June 2010. The OPM though was marginally lower at 11.1%, thus resulting in just 13% rise in absolute operating profit to Rs 17.2 3 crore. However significantly lower interest cost on a year-on-year basis helped improve the PBDT by 28% to Rs 13.81 crore. The net profit after tax increased 28% to Rs 8.01 crore.

Everest Industries top-line rose 12% to Rs 199.65 crore. OPM improved considerably by 260 bps to 13.6% as a result the absolute operating profit rose 39% to Rs 27.23 crore. Lower finance charges helped the company to improve its net profit after tax by 64% to Rs 15.50 crore on a year-on-year basis.

However Hyderabad Industries disappointed during the quarter under review. The top-line witnessed a marginal growth of just 4% to Rs 216.29 crore; however significant pressure on operating cost resulted in more than 450 bps fall in OPM to 20.1%. Thus the absolute operating profit corrected 15% to Rs 43.43 crore. The net profit of the company fell 12% to Rs 27.71 crore on a year-on-year basis. Another major cement product manufacturer, Visaka Industries is yet to declare its result.

The industry would have had experienced the pre-monsoon demand rush during the initial part of the quarter ended June 2010. However early arrival of monsoon in some part of the south India might have dented the demand emanating from this region. The lower cement prices that prevailed across the country might also have improved the operating margins for many of the players. However although the cement prices have fallen, other input prices have seen inflationary trend. The pre-monsoon period usually witnesses demand peak for the Asbestos fibre cement sheets, autoclaved aerated cement blocks, aerocon panels and fibre cement boards and other cement and cement related products. Evidently the WPI of asbestos cement corrugated sheets also witnessed price hardening during the past 4 months due to increasing price trend of asbestos.

The industry draws most of its demand from the rural and semi-urban markets. Especially fibre cement sheet and fibre boards, which constitutes a major portion of the produce of the industry is largely marketed in the rural region for housing and other roofing and wall application. However autoclaved aerated cement blocks and aerocon panels is marketed in the urban region as well for its ease of use, low weight and better durability. The current quarter is expected to be muted as far as demand growth for the industry is concerned due to the ongoing monsoon season. The construction activity especially in the rural and semi-urban centers completely halts during this period. The monsoon during the current year is seen healthy and this may augur well for the industry going ahead. The sector offers good buying opportunity as some of the very good scripts have witnessed price softening. Overall excellent GDP growth forecast of over 8% going ahead will enable the sector to post excellent incremental growth going ahead. However the organized players continues to face competition from such huge number of smaller players manufacturing similar products besides competition from players manufacturing substitute products, such as, GI Corrugated Sheets.

Fibre cement sheets will continue to maintain its preference over the substitute products due to its better features like better insulation from heat, lower cost, safety and lower maintenance and durability when compared to competing roofing material. Lack of product differentiation among the manufacturers will limit sustained uptrend as there will emerge negative marketing techniques and pricing pressure due to moves by players to increase or maintain market share. Volatile inputs price will also exert margin pressure. Although the major input used by the industry viz- cement price is seen softening, other inputs like raw chrysotile, fly-ash and lime prices are seen rising.

As per the CSO production data the production of asbestos cement sheets has witnessed consistent up-move since November 2009 although it slowed down during May – June 2010. The production grew by mere 3.7% to 6.46 lakh tonne in the quarter ended June 2010, due to flat production of 2.16 lakh tonne in May 2010, and nearly 1% fall in production to 2.14 lakh tonne in June 2010, after relatively robust 12.6% rise to 2.16 lakh tonne in April 2010. The production during the previous year ended March 2010 was 10% higher at 2.46 million metric tonnes.

The whole sale price index (WPI) of the asbestos cement corrugated sheets which has a weight of 0.11 in the WPI has been consistently increasing since March 2010. The WPI during the four months ended July 2010 was 134.20, and it was 12.3% higher over the same period of the previous year.

Andhra Pradesh based Visaka Industries, which is a major manufacturer of asbestos fibre cement products, reinforced building products and synthetic blended yarn plans to increase its asbestos cement sheets (ASC) capacity to 9.72 lakh tonnes in FY 2011. The company plans to increase the production to 7.12 lakh tonnes in FY 2011 besides expanding its marketing footprint to Chhattisgarh, Jharkhand, Orissa and Uttar Pradesh from its new plant in Sambalpur (Orissa). The company started commercial production of sandwich panels from January 2010 and going ahead the company plans to augment the production to 100% of the installed capacity. The company has given a top-line growth guidance of 25% while the bottom line is expected to grow by 20% during FY 2011. The company derives 80% of revenue from building products and 20% from synthetic blended yarn. In the asbestos cement sheets market segment, the company has a market share of about 18% with an installed capacity of 7.56 lakh tonnes.

Everest Industries, which is a major manufacturer of fibre based cement products, such as sheets for roofing and interiors is planning to set up 2 more pre-engineered building (PEB) plants in the next few years at Rs 60 crore each. Currently the company has only one PEB plant at Bhagwanpur, Uttarakhand. The second plant would be set up in either southern or western part of the country, although the production from this plant will only start the next fiscal. The company is targeting a turnover of Rs 1,000 crore for the current fiscal ended March 2011.

Hyderabad Industries has commenced the commercial production of the new AAC Blocks manufacturing unit at Golan, near Surat, Gujarat. This unit was setup in a record time of 14 months and after satisfactory completion of trial runs, the company has commenced its commercial production on July 18, 2010. This unit will help the company to cater to the growing market for AAC Blocks in the western part of the country, as the demand for this product is expanding due to its inherent advantages of light weight, good compressive strength heat and sound insulation and faster rate of construction.

One of the highly efficient producers of fibre cement sheets in India- Ramco Industries is expanding by augmenting capacity at strategic locations. The company is setting up a new plant to manufacture fibre cement products at the Sipcot Industrial Growth Centre, Gangaikondan, Tirunelveli district, Tamil Nadu, at about Rs 25 crore. This plant, to be commissioned before 30 September 2010, will increase capacity by around 25%. The company is the pioneer in introducing the innovative calcium silicate board, a versatile building interior product in India.

Ramco Industries is operating the most modern fibre cement roofing sheets and pipe plants in Arakkonam, Tamil Nadu; Karur, Karnataka; Maksi, Madhya Pradesh; Silvassa, Union Territory of Dadra & Nagar Haveli; Kharagpur, West Bengal; Vijayawada, Andhra Pradesh; and Sinugra, Gujarat. The present aggregate capacity for fibre cement sheets is 5 lakh tonnes per annum and fibre cement pressure pipes 30 lakh tonnes per annum.

Outlook

As the monsoon season has advanced to most part of the country, the demand for cement products will slow down as the construction and infrastructure activity abates. Hence the current quarter is expected to be muted as far as the performances of the cement product manufacturers are concerned. The situation will present a decent buying opportunity in the sector as the demand post monsoon is set to sky rocket. The decent monsoon across the country is further expected to reinforce the demand growth of the industry due to its rural thrust. Acceleration in urban housing and construction and other infrastructure related activity will provide opportunity for incremental demand growth in the industry. Going ahead innovation in terms of various new application products introduction and product diversification will enable the players to expand the size of the cement product market which other wise is dominated by the asbestos cement sheets. The competition from alternative application products and unorganized market will continue to be a concern.