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India Hard Hat
As feared- 2nd consecutive month of y/y decline;
FY12E demand growth estimates of 9% at risk
• 2nd consecutive month of y/y decline and this time on a normal base: Dec
cement dispatches saw a strong m/m rebound increasing 18% m/m after what
was a very weak Nov (Nov sales were down 18% m/m). However, the y/y trend
continues to disappoint with cement dispatches declining 2.9% y/y as the much
needed post-festival pick up in demand has not yet materialized. While
admittedly disturbances in the Northern India state of Rajasthan did impact
transportation, we would highlight that the y/y decline was the highest for South
based companies while Rajasthan based companies like Binani and Shree (both
NR) had broadly flat y/y sales. YTD cement dispatch growth now stands at
4.3%. Clinker inventories continued to increase from the all-time high levels to
8.45MT (up 8% m/m and +21% y/y).
• A worryingly strong base over the next few months means very weak
growth/negative growth likely: Jan-March 2010 cement dispatches (average
18.3MT per month) compared to 17.3MT sales in Dec-10, means we need to see
strong m/m (12%) recovery from current levels in order to see even 6% y/y
growth (6% y/y growth over Jan-March 11 would mean FY11E demand growth
of 4.8%). While on the ground feedback indicates some pick up in demand in
January, we believe overall environment remains weak (steel demand also was
negative in Dec).
• Anemic demand poses risks to FY12 9% growth estimate: We analyzed
cement consumption pattern between FY06-10, when Indian cement demand
increased by a CAGR of 10%, 8 states accounted for 73% of incremental growth
and grew faster than the market and these states are currently in the doldrums.
Northern India region of UP, Delhi, Haryana had a CAGR of 12% while YTD it
is 2%, 2 key states of TN and AP had a CAGR of 12%, while YTD it is -5%,
while the 3 key states of Central/Western India, Gujarat, Maharashtra and MP
had a CAGR of 10% v/s 7% YTD. Between 2006-10 we had numerous airport,
highways, housing, power, metro railway and commonwealth games-related
spending in many of the above states, which as of now is not that strong. We see
downside risks to our FY12E industry demand growth estimate of 9%.
• Jan price hikes on supply bottlenecks, some improvement in demand:
National average prices declined 4% m/m in Dec with East seeing the sharpest
decline at 6%. Prices have started to improve through late Dec and Jan-11 on
supply bottlenecks and we have seen price increases taking place in Northern
and Western India..
• South based companies see sharp y/y declines: Against overall industry
decline of ~3% y/y, South based companies has much larger y/y decline with
India Cement reporting 29%, Madras Cements 29% and Rain 17% y/y decline
(all NR). JPA (NR) continues to have the most aggressive growth among the
larger cement companies.
• Reporting reason so far: While a large part of the industry has not yet
reported, the results so far indicate that coal cost pressure is yet to flow through
the P&L.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
India Hard Hat
As feared- 2nd consecutive month of y/y decline;
FY12E demand growth estimates of 9% at risk
• 2nd consecutive month of y/y decline and this time on a normal base: Dec
cement dispatches saw a strong m/m rebound increasing 18% m/m after what
was a very weak Nov (Nov sales were down 18% m/m). However, the y/y trend
continues to disappoint with cement dispatches declining 2.9% y/y as the much
needed post-festival pick up in demand has not yet materialized. While
admittedly disturbances in the Northern India state of Rajasthan did impact
transportation, we would highlight that the y/y decline was the highest for South
based companies while Rajasthan based companies like Binani and Shree (both
NR) had broadly flat y/y sales. YTD cement dispatch growth now stands at
4.3%. Clinker inventories continued to increase from the all-time high levels to
8.45MT (up 8% m/m and +21% y/y).
• A worryingly strong base over the next few months means very weak
growth/negative growth likely: Jan-March 2010 cement dispatches (average
18.3MT per month) compared to 17.3MT sales in Dec-10, means we need to see
strong m/m (12%) recovery from current levels in order to see even 6% y/y
growth (6% y/y growth over Jan-March 11 would mean FY11E demand growth
of 4.8%). While on the ground feedback indicates some pick up in demand in
January, we believe overall environment remains weak (steel demand also was
negative in Dec).
• Anemic demand poses risks to FY12 9% growth estimate: We analyzed
cement consumption pattern between FY06-10, when Indian cement demand
increased by a CAGR of 10%, 8 states accounted for 73% of incremental growth
and grew faster than the market and these states are currently in the doldrums.
Northern India region of UP, Delhi, Haryana had a CAGR of 12% while YTD it
is 2%, 2 key states of TN and AP had a CAGR of 12%, while YTD it is -5%,
while the 3 key states of Central/Western India, Gujarat, Maharashtra and MP
had a CAGR of 10% v/s 7% YTD. Between 2006-10 we had numerous airport,
highways, housing, power, metro railway and commonwealth games-related
spending in many of the above states, which as of now is not that strong. We see
downside risks to our FY12E industry demand growth estimate of 9%.
• Jan price hikes on supply bottlenecks, some improvement in demand:
National average prices declined 4% m/m in Dec with East seeing the sharpest
decline at 6%. Prices have started to improve through late Dec and Jan-11 on
supply bottlenecks and we have seen price increases taking place in Northern
and Western India..
• South based companies see sharp y/y declines: Against overall industry
decline of ~3% y/y, South based companies has much larger y/y decline with
India Cement reporting 29%, Madras Cements 29% and Rain 17% y/y decline
(all NR). JPA (NR) continues to have the most aggressive growth among the
larger cement companies.
• Reporting reason so far: While a large part of the industry has not yet
reported, the results so far indicate that coal cost pressure is yet to flow through
the P&L.
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