We are expecting mid-teens earnings growth over next two years: Harsha Upadhyaya

economictimes.indiatimes.com:

«It may not have been visible in the recent quarters because there is a lag impact between how raw material costs or input costs behave and what happens in terms of the P&L in the companies,» says Harsha Upadhyaya, Kotak AMC.You liked cement in the past and you have said, look, the cash flows in the cement sector are getting better. It is a sector where pricing power should improve, but the reverse is at play. Even though decent consolidation has happened after the Adani’s entry into ACC and Ambuja, I looked at the numbers from Dalmia, even for that matter UltraTech, they do not look impressive. Why is cement not coming back given the economy is growing, roads are getting built? See, clearly demand has continued to remain strong but we have not seen price growth as you rightly mentioned, but we should also look at how costs have moved down in this sector.

So, net-net, I think there is going to be benefit in terms of profitability for the entire sector. It may not have been visible in the recent quarters because there is a lag impact between how raw material costs or input costs behave and what happens in terms of the P&L in the companies. So, we expect that in the September to December quarter somewhere you will see a significant improvement in the profitability of the cement companies.

As you rightly mentioned, we have seen a huge consolidation and it is not easy to put up new cement plants in our country. There is a gestation period, there are a lack of availability of limestone which is a key raw material. So, overall, I do not think the incremental capacity is going to grow at a pace which is higher than the incremental demand.