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Materials – Cement: Sector Outlook
Cement demand has been strong in the past few years. However, increased supply in the
market has put pressure on prices in the past few months, with producers trying to ration
supply by cutting production and giving support to prices. This, in combination with rising
costs, will keep margins muted.
Demand has been strong but is slacking: Cement demand in India is a proxy to
domestic growth, and has almost 1:1 correlation with GDP growth. Demand so far has
been holding strong, though it has reduced this year so far at 7.3%, below its long-term
average of 10%.
Supply is the concern: Capacity in the cement market has started to hit and prices have
come under pressure. We expect flat prices in FY11 and a 5% decline in FY3/12, hit by
this increase in capacity. We expect capacity additions of 50mnt in FY3/10 and FY3/11
each, oversupply of ~10% expected in FY3/11 and FY3/12.
Costs have been increasing: Rising coal and energy prices will be another headwind.
Prices are down 6% since April, though recently there has been some modest recovery.
Combined with falling cement prices, companies could see compression in margins.
Prefer exposure in diversified companies: We expect oversupply to remain a key
issue for cement companies over the next few quarters and prefer exposure to
diversified companies and would be sellers of expensive cement companies. Top
sells – ACEM IN
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Materials – Cement: Sector Outlook
Cement demand has been strong in the past few years. However, increased supply in the
market has put pressure on prices in the past few months, with producers trying to ration
supply by cutting production and giving support to prices. This, in combination with rising
costs, will keep margins muted.
Demand has been strong but is slacking: Cement demand in India is a proxy to
domestic growth, and has almost 1:1 correlation with GDP growth. Demand so far has
been holding strong, though it has reduced this year so far at 7.3%, below its long-term
average of 10%.
Supply is the concern: Capacity in the cement market has started to hit and prices have
come under pressure. We expect flat prices in FY11 and a 5% decline in FY3/12, hit by
this increase in capacity. We expect capacity additions of 50mnt in FY3/10 and FY3/11
each, oversupply of ~10% expected in FY3/11 and FY3/12.
Costs have been increasing: Rising coal and energy prices will be another headwind.
Prices are down 6% since April, though recently there has been some modest recovery.
Combined with falling cement prices, companies could see compression in margins.
Prefer exposure in diversified companies: We expect oversupply to remain a key
issue for cement companies over the next few quarters and prefer exposure to
diversified companies and would be sellers of expensive cement companies. Top
sells – ACEM IN
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