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India Cement
Cement Demand- After a weak FY11 (+4%) we HOPE
for a better FY12E (+7%)
• After a weak FY11E, we HOPE for a better FY12E: We cut our FY11-12E
cement demand estimates from current 7.1% and 8.6% to 4.1% and 7%
respectively. While the past few months have been very weak for cement
demand (Feb seems to have been better), granular analysis of state wise
consumption indicates that a synchronized pick up in infra capex is required for
a meaningful increase in demand in key state clusters in North, East and South
India. Hence we believe our 7% FY12E demand is likely to be back ended and
predicated on recovery in the key state of AP, where we estimate consumption
YTD is down 14% (ex AP cement demand growth at 5.5% as per our estimates
compared to headline of 3.5%) and pick up in infra spending. We expect
headline growth numbers to remain weak at least till July-11 driven by base
effect and lack of any meaningful capex. We maintain our capacity addition
estimates but now utilization levels are expected to hit 85% only in FY13E.
• Preliminary Feb-11 dispatch growth driven mainly by ACC: Sales reported
by large cement players (ACC, Ambuja, UTCEM, Dalmia, OCL) points to 8%
y/y increase in dispatches in Feb (Since June-10 growth was dismal). The
cumulative data reported for these companies is +8.2% y/y increases. However
most of the growth is driven by ACC (+17% y/y) and ex ACC y/y growth is
5.5%. ACEM was at 4.7%, UTCEM at +4.4% and Dalmia +20% y/y. We
believe the sharp improvement after the last few months is essentially driven by
the very weak base in South India of last year.
• Sharp price increases over Jan-March driven by production discipline, but
coal costs turning to be sticky given differential pricing by COAL: Cement
prices have seen aggressive hikes over past 3 months with the sharpest increases
in West and Central India. However cost pressures are turning sticky with the
recent 30% coal price increase from Coal India, indicating a differential pricing
policy with non power sectors paying market prices of coal. While the impact
would differ from company to company (with those on import coal seeing little
impact and those on linkage coal seeing the most increase) the price increase has
somewhat flattened the coal cost curve of the industry
• Stock- Yes There is value on a multi year horizon, but difficult to see
meaningful upside over next few months: Admittedly the negatives of excess
supply and higher costs are priced in, however continued weak demand (which
extends the excess capacity period) would likely lead to subdued equity
performance in the near term, in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Cement
Cement Demand- After a weak FY11 (+4%) we HOPE
for a better FY12E (+7%)
• After a weak FY11E, we HOPE for a better FY12E: We cut our FY11-12E
cement demand estimates from current 7.1% and 8.6% to 4.1% and 7%
respectively. While the past few months have been very weak for cement
demand (Feb seems to have been better), granular analysis of state wise
consumption indicates that a synchronized pick up in infra capex is required for
a meaningful increase in demand in key state clusters in North, East and South
India. Hence we believe our 7% FY12E demand is likely to be back ended and
predicated on recovery in the key state of AP, where we estimate consumption
YTD is down 14% (ex AP cement demand growth at 5.5% as per our estimates
compared to headline of 3.5%) and pick up in infra spending. We expect
headline growth numbers to remain weak at least till July-11 driven by base
effect and lack of any meaningful capex. We maintain our capacity addition
estimates but now utilization levels are expected to hit 85% only in FY13E.
• Preliminary Feb-11 dispatch growth driven mainly by ACC: Sales reported
by large cement players (ACC, Ambuja, UTCEM, Dalmia, OCL) points to 8%
y/y increase in dispatches in Feb (Since June-10 growth was dismal). The
cumulative data reported for these companies is +8.2% y/y increases. However
most of the growth is driven by ACC (+17% y/y) and ex ACC y/y growth is
5.5%. ACEM was at 4.7%, UTCEM at +4.4% and Dalmia +20% y/y. We
believe the sharp improvement after the last few months is essentially driven by
the very weak base in South India of last year.
• Sharp price increases over Jan-March driven by production discipline, but
coal costs turning to be sticky given differential pricing by COAL: Cement
prices have seen aggressive hikes over past 3 months with the sharpest increases
in West and Central India. However cost pressures are turning sticky with the
recent 30% coal price increase from Coal India, indicating a differential pricing
policy with non power sectors paying market prices of coal. While the impact
would differ from company to company (with those on import coal seeing little
impact and those on linkage coal seeing the most increase) the price increase has
somewhat flattened the coal cost curve of the industry
• Stock- Yes There is value on a multi year horizon, but difficult to see
meaningful upside over next few months: Admittedly the negatives of excess
supply and higher costs are priced in, however continued weak demand (which
extends the excess capacity period) would likely lead to subdued equity
performance in the near term, in our view.
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