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India Cement
January data not pointing to any sharp increase in demand; prices increasing on 'supply issues' ; Q3 results all over the place
• Preliminary Jan-11 data not suggesting any sharp rebound in demand:
Preliminary data reported by the majors (ACC, ACEM, and UTCEM) points to
no sharp recovery in cement demand in January. Cumulative dispatch growth
stands at 4% m/m and y/y for the companies, which have reported so far
(accounting for ~42% of Industry dispatches). The silver lining is: a) South
based company Dalmia Cement (NR) reported strong m/m and y/y growth (Jan-
10 was an unusually weak month for South India) and b) after 2 consecutive
months of y/y decline, Jan-11 should be a positive growth month for the
industry. ACC reported +7% y/y, ACEM +5%, UTCEM -2.6% y/y.
• Cement prices increasing across regions on ‘supply issues’: After price
corrections through Dec, cement prices have increased in January between 3-
10% across most regions on ‘supply issues’ with the traditional supply issues
like ‘wagon shortages’ coming to the forefront. Price increases have been more
modest in South India, where we did not see any major price correction in Nov-
Dec, while increases has been higher in North and Central India, where price
correction as sharper in Nov-Dec.
• Q3 results- Mixed picture: Analyzing the results of 13 companies which have
reported so far, Dec quarter has been mixed with South based companies
reporting on average higher profitability than Central/North based companies
(not surprising given the sharp increase in cement prices, and which held up).
EBITDA margins have ranged between 7-20% across the sector so far in what
was a relatively decent quarter in terms of volume and price compared to Sept
quarter.
• Coal costs increasing across the board: The operating costs/MT saw a sharp
increase y/y across the board, mainly on higher power and fuel costs and freight
costs. We believe the full impact of the coal cost is yet to be felt through the
P&L, and expect coal costs for the cement industry to rise from the Dec quarter,
with companies having lower linkages more exposed to coal price increases.
Coal prices have increased both on e-auction and import prices with spot
thermal prices in January up 20% compared to average Dec quarter and 40%
compared to average Sept quarter, implying sharp cost escalation. Power and
fuel accounts for 25-30% of total costs.
• March to be a strong quarter given price increases seen, but capacity and
cost issues have not gone away, while weakening demand is another
headwind: While the recent cement price increases point to q/q recovery in
margins, the increasing coal costs are likely to be fully felt over the next 2
quarters. We are not very confident of the current cement price momentum
sustaining beyond the seasonally strong March quarter, given capacity issues.
The soft patch in industry demand continues, with the traditional demand
surge from Government in the Nov-March period not yet materializing,
while the wait for the elusive private sector infra capex continues
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Cement
January data not pointing to any sharp increase in demand; prices increasing on 'supply issues' ; Q3 results all over the place
• Preliminary Jan-11 data not suggesting any sharp rebound in demand:
Preliminary data reported by the majors (ACC, ACEM, and UTCEM) points to
no sharp recovery in cement demand in January. Cumulative dispatch growth
stands at 4% m/m and y/y for the companies, which have reported so far
(accounting for ~42% of Industry dispatches). The silver lining is: a) South
based company Dalmia Cement (NR) reported strong m/m and y/y growth (Jan-
10 was an unusually weak month for South India) and b) after 2 consecutive
months of y/y decline, Jan-11 should be a positive growth month for the
industry. ACC reported +7% y/y, ACEM +5%, UTCEM -2.6% y/y.
• Cement prices increasing across regions on ‘supply issues’: After price
corrections through Dec, cement prices have increased in January between 3-
10% across most regions on ‘supply issues’ with the traditional supply issues
like ‘wagon shortages’ coming to the forefront. Price increases have been more
modest in South India, where we did not see any major price correction in Nov-
Dec, while increases has been higher in North and Central India, where price
correction as sharper in Nov-Dec.
• Q3 results- Mixed picture: Analyzing the results of 13 companies which have
reported so far, Dec quarter has been mixed with South based companies
reporting on average higher profitability than Central/North based companies
(not surprising given the sharp increase in cement prices, and which held up).
EBITDA margins have ranged between 7-20% across the sector so far in what
was a relatively decent quarter in terms of volume and price compared to Sept
quarter.
• Coal costs increasing across the board: The operating costs/MT saw a sharp
increase y/y across the board, mainly on higher power and fuel costs and freight
costs. We believe the full impact of the coal cost is yet to be felt through the
P&L, and expect coal costs for the cement industry to rise from the Dec quarter,
with companies having lower linkages more exposed to coal price increases.
Coal prices have increased both on e-auction and import prices with spot
thermal prices in January up 20% compared to average Dec quarter and 40%
compared to average Sept quarter, implying sharp cost escalation. Power and
fuel accounts for 25-30% of total costs.
• March to be a strong quarter given price increases seen, but capacity and
cost issues have not gone away, while weakening demand is another
headwind: While the recent cement price increases point to q/q recovery in
margins, the increasing coal costs are likely to be fully felt over the next 2
quarters. We are not very confident of the current cement price momentum
sustaining beyond the seasonally strong March quarter, given capacity issues.
The soft patch in industry demand continues, with the traditional demand
surge from Government in the Nov-March period not yet materializing,
while the wait for the elusive private sector infra capex continues
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