Cement Nov cement sales weak as expected; JPMorgan

Visit http://indiaer.blogspot.com/ for complete details �� ��



Cement
Nov cement sales weak as expected; Waiting for the
peak season recovery



• Majors report sharp m/m decline, only modest y/y growth in Nov-
10: As expected, Indian cement companies have reported a weak Nov,
specially coming on the back of very strong Oct cement sales. While unseasonal
rains in North India, onset of the re-treating Monsoon in South,
and festivals in the first half of Nov are some of the reasons, we also
believe that overall the real under lying demand has been weak over
the last few months. While private spending in infrastructure has
been lackluster, government spending has not yet picked up.
Cumulatively the 6 companies which have reported so far
(accounting for 48-52% of Industry dispatches) reported 19% m/m
decline and 2% y/y decline in Nov-10.


• Company wise details: ACC reported 5% y/y increase but a 9% m/m
decline, relatively the best numbers among the majors (recent new
capacity commissioning should have helped). ACEM (-19% m/m; -8%
y/y), UTCEM (-22% m/m, -9% y/y); JPA (NR, -25% m/m; +7% y/y),
and Dalmia (-35% m/m, +2% y/y) all reported weak numbers. (please
see page 2 for more details)

• Approaching peak season of demand, on the ground recovery key
given recent new capacities in North India: While supply discipline
has held out so far in South India and as a result cement prices are at a
sharp national premium even with low utilization levels, we believe a
pick up in demand is critical for North/West India as we approach the
peak demand season. As we highlighted in our recent India Hard Hat
(dated 29th Nov, 2010), 'we are seeing: a) increasing pressure in the
North India cement market as the new capacity commissioning in
the state of Rajasthan has coincided with weaker demand; and b)
cement prices in the North market are seeing a downward
correction’. Our recent meetings with cement companies and dealers
indicated that the companies in North/West India are keen to protect
market share and hence the pricing pressure seen recently.

• ACC, ACEM down 10-15% from recent peaks, would prefer
GRASIM at current levels: Both ACC and ACEM have declined 10-
15% from recent peak levels as the expected Corporate Action has not
yet materialized. We would continue to prefer GRASIM at current levels
given VSF strength and inexpensive valuations.