Credit profile of large cement companies with superior cost position and pan-India presence is expected to remain stable in 2013. Smaller companies with unfavourable cost structure and regional concentrations are likely to be under pressure, said India Ratings. It has revised its outlook for Indian cement manufacturers to ‘stable to negative’ for 2013 from ‘negative’ in 2012, driven by limited downside risk for demand.
Top five large integrated players in the country (in terms of production capacity) are likely to have median Ebitda margins in the range of 23% to 24% in 2013. However, smaller or partially-integrated players are likely to exhibit margins ranging from 17% to19%, lower than the median margins observed for such companies in FY12.
The agency expects consolidation in the cement industry in the medium-to-long-term with significant M&A activities in the sector. Consolidation targets are more likely to be the companies which either have access to resource (raw material and power/fuel) or have proximity to relatively underserved markets.