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Cement- Higher volume growth in Feb on lower base…
Dispatches by cement majors grow by ~14% YoY in February 2011
The total cement volume is expected to grow ~11% YoY in February
2011 as six major companies, holding ~50% of total cement capacity,
reported a 14% YoY increase in dispatches for the month. However, on an
MoM basis, overall volume of the six companies was lower by ~1% on
the back of lesser days in February and hike in prices. Cement prices have
increased across the country in the wake of a production cut by cement
manufacturer and a change in the excise duty structure (announced in
Budget 2011-12).
Major cement players such as UltraTech, ACC, Ambuja, Jaypee, Shree
Cement and JK Lakshmi Cement reported growth in dispatches on a YoY
basis. JP Associates clocked ~41% YoY growth in dispatches during the
month while Shree Cement reported ~25% YoY growth. ACC and
Ambuja Cement reported a volume growth of ~17% and ~5% YoY,
respectively. However, on an MoM basis, the major players namely ACC,
Ambuja, UltraTech and Jaypee reported negative growth in dispatches
number by 2.4%, 3.8%, 1.8% and 1.2%, respectively. The YoY growth in
sales volume was on account of lower base during the month last year.
Cement prices to remain firm on continued supply discipline
Cement prices have shot up by ~| 30-50 a bag in the last two months
across regions as subdued demand and rising input costs forced cement
manufacturers to maintain supply discipline. Currently, prices in Delhi are
hovering at ~ | 275 a bag while prices in Kolkata have touched ~| 280 a
bag. In Mumbai, per bag price is at | 268 while in Hyderabad and Chennai,
prices rose by | 10 a bag to | 260 and | 275, respectively.
Industry outlook
The total cement consumption is expected to grow at 3.8% YoY in FY11E
as against growth of 3.6% in April-January FY11. For FY11E, the capacity
utilisation rate is expected to come down to 76% from 87% in FY10 as we
expect ~44 MTPA of effective capacity addition during the year as against
~8 MTPA of incremental demand. However, the capacity utilisation rate is
expected to improve to 78% in FY12E on account of lesser effective
capacity addition of ~13 MTPA during the year compared to an increase
in demand of ~14 MTPA. Cement prices have increased by | 30-50 per
bag across regions on account of pricing discipline maintained by players
after taking production cuts. We expect prices to remain firm in Q4FY11E
and Q1FY12E on the back of a pick-up in demand during the period,
which is known as the best period for construction activities.
Capacity utilisation in February 2011 expected at 82%, in line with January
Capacity utilisation in February is expected to be in line with January’s
utilisation rate i.e. ~82% mostly due to subdued MoM growth in demand.
However, the utilisation rate for YTD FY11 stood at 76% as against 87% in
FY10 mainly on account of a long lull in demand during the second half of
the current financial year.
Prices to remain firm in northern regions
Average cement prices in Delhi increased by | 15 per 50 kg bag to | 238
per bag in February 2011 from | 223 per bag in January 2011. The
increase in per bag prices was on the back of a revival in cement demand
from rising construction activities in the region. On a YoY basis, prices
were higher by ~1% or | 3 per bag. Cement demand has risen
significantly in the last two months of FY11 as compared to muted offtake
in Q3FY11, which created room for cement companies to increase prices
by | 15 per bag in February 2011. Currently, cement prices are hovering at
nearly | 275 per bag in Delhi as the recent hike in coal prices resulted in
higher cost of production and new rates of duty forced cement players to
pass on the extra burden to consumers. We expect the demand to
improve, going forward, with a pick-up in infrastructure activity as
historically the period of March to May is known as the best months for
construction activity
Higher prices in eastern region despite lack of demand
Average cement prices in Kolkata and other parts of the eastern region
saw a sharp rise of | 7 per 50 kg bag to | 277 in February 2011 from | 270
in January 2011. Our dealer sources indicated that prices are expected to
move up further as the rise in input cost would make prices dearer by
another | 10 a bag. Currently, per bag price of cement crossed | 280 in
Kolkata. We expect an increase in construction activity in the eastern
region to create more space for cement players to hike prices to offset
rising input costs (coal prices rose to nearly 30%).
Price hike of | 10 a bag in western region
Average cement prices in the western region witnessed a rise of | 10 per
bag during February 2011 to | 268 per bag as compared to | 258 per bag
in January 2011. The price rose about ~5% or | 13 per bag from | 255 per
bag in February 2010. The rise in cement prices was despite a lukewarm
growth in demand (on a month on month basis) indicating that cement
players were caught between lower demand and rising input cost, which
they were obliged to pass on to end users. However, we expect cement
bags to become dearer by another | 10 a bag due to rising input cost,
post Budget pick-up in construction activity (revival in demand) and
changes in duty structure by the government.
Pricing discipline continues in southern region
Average cement prices in Hyderabad saw a sharp jump of | 28 a bag or
12% MoM to | 260 per bag in February 2011 as compared to | 232 per
bag in January 2011. On a YoY basis, prices per bag were higher by
~58% in Hyderabad from | 165 per bag in February 2010. However,
demand in Andhra Pradesh remained bleak due to the Telangana issue.
On the other hand, cement prices in Chennai increased by 2% MoM or | 5
per bag to | 275 after marginal growth in cement demand. Prices have
increased by ~28% YoY or | 60 per bag from its low of | 215 per bag in
July 2010
Impact: We believe the change in rate structure will lead to a minimum
price hike of ~| 4 per bag, which will be passed on to end consumers.
However, companies such as Shree Cement, JK cement and JK Lakshmi
Cement will benefit from a reduction in imported duty on petcoke as this
will reduce the power and fuel cost by around | 30/tonne.
Hike in coal prices by 30% from Coal India to impact significantly
Coal India Ltd, the largest domestic coal supplier, has hiked the price of
coal by around 30% with effect from February 27, 2011. Coal India has
implemented a differential pricing methodology for coal for market driven
sectors and regulated sectors. Prices of coal for market driven sectors
have been hiked by ~30% while that for regulated sectors like power
utilities, fertiliser, IPPs and defence sector have been kept constant. The
increase has been pegged with the floor level of the spot e-auction prices
of coal. The price of ‘A’ and ‘B’ grade of coal has been linked with
international coal prices and would be offered at a 15% discount to the
global spot price.
Increase in coal prices will negatively affect the earnings of our cement
coverage universe by ~6-23% for FY12E and by ~3-18% for FY13E. We
have revised the earnings estimates for the companies that meet their
coal requirement through domestic sources. In our cement coverage
universe, six companies viz. ACC, Ambuja Cement, UltraTech Cement,
India Cement, Orient Paper and Mangalam Cement will be impacted the
most.
Industry outlook
Total cement consumption is expected to grow at 3.8% YoY in FY11E to
~207 million tonnes (MT) (~200 MT in FY10) as against growth of 3.6% in
YTDFY11 (April 2010 – January 2011). We are estimating consumption
growth of 10.1% YoY for February 2011 due to a low base in February
2010 and nil demand growth in March on YoY basis on account of high
base in March 2010. Cement consumption remained subdued during
YTDFY11 on account of prolonged monsoons, political uncertainty in
Andhra Pradesh, largest cement consuming state in the southern region,
the Gujjar agitation in Rajasthan, unavailability of sand and shortage of
railway wagons to dispatch the commodity on schedule.
For FY11E, the capacity utilisation rate is expected to come down to 76%
from 87% in FY10 as we expect ~44 MTPA of effective capacity addition
during the year as against ~8 MTPA of incremental demand.
For FY12E, we are estimating consumption growth of 6.5% YoY as we
expect the demand from the housing and infrastructure segments to
remain under pressure on account of key issues like rising cost of capital,
land acquisition and clearances and unavailability of key raw material like
coal to the manufacturing industry. However, the capacity utilisation rate
is expected to improve to 77% in FY12E on account of lesser effective
capacity addition during the year compared to an increase in demand. We
expect effective capacity addition of ~13 MTPA as against ~14 MTPA of
incremental demand.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cement- Higher volume growth in Feb on lower base…
Dispatches by cement majors grow by ~14% YoY in February 2011
The total cement volume is expected to grow ~11% YoY in February
2011 as six major companies, holding ~50% of total cement capacity,
reported a 14% YoY increase in dispatches for the month. However, on an
MoM basis, overall volume of the six companies was lower by ~1% on
the back of lesser days in February and hike in prices. Cement prices have
increased across the country in the wake of a production cut by cement
manufacturer and a change in the excise duty structure (announced in
Budget 2011-12).
Major cement players such as UltraTech, ACC, Ambuja, Jaypee, Shree
Cement and JK Lakshmi Cement reported growth in dispatches on a YoY
basis. JP Associates clocked ~41% YoY growth in dispatches during the
month while Shree Cement reported ~25% YoY growth. ACC and
Ambuja Cement reported a volume growth of ~17% and ~5% YoY,
respectively. However, on an MoM basis, the major players namely ACC,
Ambuja, UltraTech and Jaypee reported negative growth in dispatches
number by 2.4%, 3.8%, 1.8% and 1.2%, respectively. The YoY growth in
sales volume was on account of lower base during the month last year.
Cement prices to remain firm on continued supply discipline
Cement prices have shot up by ~| 30-50 a bag in the last two months
across regions as subdued demand and rising input costs forced cement
manufacturers to maintain supply discipline. Currently, prices in Delhi are
hovering at ~ | 275 a bag while prices in Kolkata have touched ~| 280 a
bag. In Mumbai, per bag price is at | 268 while in Hyderabad and Chennai,
prices rose by | 10 a bag to | 260 and | 275, respectively.
Industry outlook
The total cement consumption is expected to grow at 3.8% YoY in FY11E
as against growth of 3.6% in April-January FY11. For FY11E, the capacity
utilisation rate is expected to come down to 76% from 87% in FY10 as we
expect ~44 MTPA of effective capacity addition during the year as against
~8 MTPA of incremental demand. However, the capacity utilisation rate is
expected to improve to 78% in FY12E on account of lesser effective
capacity addition of ~13 MTPA during the year compared to an increase
in demand of ~14 MTPA. Cement prices have increased by | 30-50 per
bag across regions on account of pricing discipline maintained by players
after taking production cuts. We expect prices to remain firm in Q4FY11E
and Q1FY12E on the back of a pick-up in demand during the period,
which is known as the best period for construction activities.
Capacity utilisation in February 2011 expected at 82%, in line with January
Capacity utilisation in February is expected to be in line with January’s
utilisation rate i.e. ~82% mostly due to subdued MoM growth in demand.
However, the utilisation rate for YTD FY11 stood at 76% as against 87% in
FY10 mainly on account of a long lull in demand during the second half of
the current financial year.
Prices to remain firm in northern regions
Average cement prices in Delhi increased by | 15 per 50 kg bag to | 238
per bag in February 2011 from | 223 per bag in January 2011. The
increase in per bag prices was on the back of a revival in cement demand
from rising construction activities in the region. On a YoY basis, prices
were higher by ~1% or | 3 per bag. Cement demand has risen
significantly in the last two months of FY11 as compared to muted offtake
in Q3FY11, which created room for cement companies to increase prices
by | 15 per bag in February 2011. Currently, cement prices are hovering at
nearly | 275 per bag in Delhi as the recent hike in coal prices resulted in
higher cost of production and new rates of duty forced cement players to
pass on the extra burden to consumers. We expect the demand to
improve, going forward, with a pick-up in infrastructure activity as
historically the period of March to May is known as the best months for
construction activity
Higher prices in eastern region despite lack of demand
Average cement prices in Kolkata and other parts of the eastern region
saw a sharp rise of | 7 per 50 kg bag to | 277 in February 2011 from | 270
in January 2011. Our dealer sources indicated that prices are expected to
move up further as the rise in input cost would make prices dearer by
another | 10 a bag. Currently, per bag price of cement crossed | 280 in
Kolkata. We expect an increase in construction activity in the eastern
region to create more space for cement players to hike prices to offset
rising input costs (coal prices rose to nearly 30%).
Price hike of | 10 a bag in western region
Average cement prices in the western region witnessed a rise of | 10 per
bag during February 2011 to | 268 per bag as compared to | 258 per bag
in January 2011. The price rose about ~5% or | 13 per bag from | 255 per
bag in February 2010. The rise in cement prices was despite a lukewarm
growth in demand (on a month on month basis) indicating that cement
players were caught between lower demand and rising input cost, which
they were obliged to pass on to end users. However, we expect cement
bags to become dearer by another | 10 a bag due to rising input cost,
post Budget pick-up in construction activity (revival in demand) and
changes in duty structure by the government.
Pricing discipline continues in southern region
Average cement prices in Hyderabad saw a sharp jump of | 28 a bag or
12% MoM to | 260 per bag in February 2011 as compared to | 232 per
bag in January 2011. On a YoY basis, prices per bag were higher by
~58% in Hyderabad from | 165 per bag in February 2010. However,
demand in Andhra Pradesh remained bleak due to the Telangana issue.
On the other hand, cement prices in Chennai increased by 2% MoM or | 5
per bag to | 275 after marginal growth in cement demand. Prices have
increased by ~28% YoY or | 60 per bag from its low of | 215 per bag in
July 2010
Impact: We believe the change in rate structure will lead to a minimum
price hike of ~| 4 per bag, which will be passed on to end consumers.
However, companies such as Shree Cement, JK cement and JK Lakshmi
Cement will benefit from a reduction in imported duty on petcoke as this
will reduce the power and fuel cost by around | 30/tonne.
Hike in coal prices by 30% from Coal India to impact significantly
Coal India Ltd, the largest domestic coal supplier, has hiked the price of
coal by around 30% with effect from February 27, 2011. Coal India has
implemented a differential pricing methodology for coal for market driven
sectors and regulated sectors. Prices of coal for market driven sectors
have been hiked by ~30% while that for regulated sectors like power
utilities, fertiliser, IPPs and defence sector have been kept constant. The
increase has been pegged with the floor level of the spot e-auction prices
of coal. The price of ‘A’ and ‘B’ grade of coal has been linked with
international coal prices and would be offered at a 15% discount to the
global spot price.
Increase in coal prices will negatively affect the earnings of our cement
coverage universe by ~6-23% for FY12E and by ~3-18% for FY13E. We
have revised the earnings estimates for the companies that meet their
coal requirement through domestic sources. In our cement coverage
universe, six companies viz. ACC, Ambuja Cement, UltraTech Cement,
India Cement, Orient Paper and Mangalam Cement will be impacted the
most.
Industry outlook
Total cement consumption is expected to grow at 3.8% YoY in FY11E to
~207 million tonnes (MT) (~200 MT in FY10) as against growth of 3.6% in
YTDFY11 (April 2010 – January 2011). We are estimating consumption
growth of 10.1% YoY for February 2011 due to a low base in February
2010 and nil demand growth in March on YoY basis on account of high
base in March 2010. Cement consumption remained subdued during
YTDFY11 on account of prolonged monsoons, political uncertainty in
Andhra Pradesh, largest cement consuming state in the southern region,
the Gujjar agitation in Rajasthan, unavailability of sand and shortage of
railway wagons to dispatch the commodity on schedule.
For FY11E, the capacity utilisation rate is expected to come down to 76%
from 87% in FY10 as we expect ~44 MTPA of effective capacity addition
during the year as against ~8 MTPA of incremental demand.
For FY12E, we are estimating consumption growth of 6.5% YoY as we
expect the demand from the housing and infrastructure segments to
remain under pressure on account of key issues like rising cost of capital,
land acquisition and clearances and unavailability of key raw material like
coal to the manufacturing industry. However, the capacity utilisation rate
is expected to improve to 77% in FY12E on account of lesser effective
capacity addition during the year compared to an increase in demand. We
expect effective capacity addition of ~13 MTPA as against ~14 MTPA of
incremental demand.
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