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UBS Investment Research
Indian Cement Industry
December volumes—muted growth
„ Ambuja/ACC volumes up ~6%/2%; Ultratech volumes decline marginally
December cement dispatches for Ambuja increased 5.6% YoY to 1.8mt (+29%
MoM; dispatches last month were impacted due to a transporters’ strike in
Himachal Pradesh), and ACC’s volume grew 2.1% YoY to 1.9mt (up 10.3%
MoM). Ultratech’s dispatches declined marginally (-0.6% YoY) to 3.3mt (up
23.1% MoM). Volume of other large players like JP Associates grew 29% YoY led
by expanded capacity (+46% YTD). Dispatches during the April-December 2010
period for Ultratech/ACC/Ambuja have increased 3.9%/-0.9%/6.9% YoY.
„ Industry dispatches grew 5.5% YoY during April-November 2010
Industry dispatches declined 5.9% YoY in November 2010 and grew 5.5% YTD
(April-November 2010). This is the lowest growth during this period (AprilNovember) in the last five years (CAGR of about 9.2%). Although dispatches are
seasonally strong in Q4 (due to robust construction activity), we believe there are
downside risks to our FY11 estimate of 10% for industry demand growth, given
muted dispatch growth for the larger players in December 2010. Industry data for
December is yet to be released.
„ We remain cautious in the near term; Grasim is our preferred pick
We are cautious on the near-term outlook for the cement sector in India as: 1) we
expect industry over-capacity to remain in FY12 due to large capacity additions; 2)
cost pressures led by rising coal prices could keep profitability in check; 3)
increasing industry fragmentation across regions will likely impact pricing power;
and 4) stocks are already trading at a premium to replacement costs. Overall, we do
not think that the risk-reward is favourable at current valuations. Our preferred
pick in the sector is Grasim, which we like for its VSF business.
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