Visit http://indiaer.blogspot.com/ for complete details Px hike: north to follow south?
Following the price hikes in south India, our channel checks indicate that
players in north are likely to announce a price hike of Rs15-30/bag today.
This would be driven by producer discipline, despite no improvement in
demand trend. Feedbacks from south indicate that price hikes effected 2-3
weeks back have been gradually absorbed. We however remain sceptical of
hikes sustaining given high capacity surpluses. Grasim, Shree are our
preferred picks in the sector; Shree, Ambuja have highest leverage to north
cement prices in our coverage; JK Lakshmi, Binani, Mangalam and JK Cement
(non-coverage) also have high exposure to north.
North follows the footstep of south; px hikes likely to be announced today
Our channel checks indicate that players in north India are likely to announce
a price hike of Rs15-20/bag starting today in the trade segment and Rs30-
35/bag in non-trade (bulk).
This would be driven by producer discipline as demand trend continues to be
weak, though, should soon improve soon (demand pick up post monsoons).
Interactions with market participants indicate that industry is serious with its
intend to take up prices after a sharp corrections in Aug-10.
Recovery from very low levels – do we know the bottom px?
Interestingly, discussions indicate that extent of price drops in Aug-10 were
much higher that our estimate and may even be higher than street estimates.
Prices, for example, in Jaipur dropped to Rs195/bag in end-Aug and likely rise
of Rs20/bag still implies that price would be marginally lower than July.
The declines have been even higher in non-trade (bulk) segment. For
example, prices in Jaipur went down to Rs150/bag (cf. Rs180/bag in Jul-10)
and would likely rise to Rs185/bag post the hikes.
There may negative surprise in 2Q results given the erratic price movements
during the quarter; realisations may therefore be lower than estimates.
Px hike in central India; watch for inflows from north/ west
Our interactions with industry participants in central region indicate that
cement prices have been increased by Rs15-25/bag, beginning this week.
Post these hikes, there have been rise in inflows from north/west; post hikes
in north, inflows into central should come down which should help.
Feedbacks indicate hikes in south absorbed; early to conclude though
Our interactions with dealers in south indicate that price hike of Rs30-50/bag
has been implemented; we however highlight that it may also be early to
conclude considering the hikes were announced only 2-3 weeks back.
Dealers are also unsure of this sustaining given weak demand trend and
continuing capacity additions.
Newsflow to improve, risk-reward not in favour, though; UWT stays
Newsflow should remain positive for the sector: a) demand improves with pick
up in construction activity b) base effect sets-in and demand growth improves
YoY; c) px hike get kicker from improved demand conditions.
From a medium term perspective, we are sceptical on sector fundamentals as
we expect operating rates to average at 79-82% over FY11-12 (20-years low)
and hence, effort to raise prices may only be temporary.
We maintain our U-WT stance from a one year perspective, therefore.
We highlight that 1% change in realisation impact EPS by 4-5.5% for ACC,
Ambuja, UltraTech; 19% for India; 2.5% for Grasim.
Grasim, Shree are our preferred picks in the sector; Shree, Ambuja have
highest leverage to north cement prices in our coverage; JK Lakshmi, Binani,
Mangalam and JK Cement also have high exposure to north markets.
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