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Cement
During January and February 2011, cement dispatches grew
by 3.1% yoy. Growth in dispatches was aided by the late
pick-up in demand post the cessation of monsoons in the
southern region. Similarly, construction activities picked up in
the northern region in February after the cold weather came to
an end. Demand improved in the west as well due to
improvement in availability of sand.
Performance of top players
During January and February 2011, Jaiprakash Associates
continued to remain the top performer with respect to growth
in dispatches, posting a 27.3% yoy jump in sales volumes to
2.8mn tonnes (mt) on the back of substantial capacity
addition. ACC reported 11.9% yoy growth in dispatches to
4.05mt, aided by higher capacity. Ambuja Cements' dispatches
grew by modest 5.1% yoy to 3.6mt.
Price situation
Improved demand across the country since February 2011
resulted in a surge in cement prices. Further, cement
manufacturers hiked prices by `6-8/bag across the country to
pass on the hike in excise duty due to announcement of the
new duty structure in the Union Budget. Currently, all-India
cement prices are trading at `270/bag, which is ~12% above
3QFY2011 average prices.
All-India capacity to increase by 28mt in FY2011
In FY2010, all-India cement capacity stood at 267mtpa.
In FY2011, the country's cement capacity is expected to increase
by 28mt and touch 295mt. The country’s cement capacity is
expected to increase further by 18mtpa in FY2012E.
Capacity utilisation
During 4QFY2011(Upto February 2011), all-India capacity
utilisation picked up slightly, increasing to 79% from 76% in
3QFY2011, on the back of low demand and new capacities
coming on stream. Overall, in FY2011, utilisation levels are
expected to be ~78%.
Union Budget 2011-12 – Neutral for the cement sector
The Union Budget 2011-12 is expected to have a neutral impact
on the cement sector. The most important budget announcement
concerning the cement sector pertained to changes in the excise
duty structure, which is likely to have an impact of `2-3/bag for
cement sold above `190; the impact is higher by
`4.5/bag for cement sold below `190, as per the new tax
regime. Post budget cement players have increased cement
prices on account of the hike in excise duty.
Global coal prices surge
Indian cement manufacturers are highly dependent on imported
coal due to relatively low coal linkages within India. The cement
industry gets ~45% of its requirement from domestic linkage
coal, while the remaining is procured from global markets and
the domestic open market. Global spot coal prices were
substantially higher on a yoy basis during the quarter. Average
prices of New Castle Mckloksey 6,700kc coal stood at
~US $129/tonne in 4QFY2011, as against US $95/tonne in
4QFY2010. Coal cost has surged by ~20% over the last three
months after the floods in Australia in December 2010, which
disrupted coal exports from the country.
The increase in coal prices is expected to result in higher power
costs for cement manufacturers during the quarter, which would
considerably impact margins.
Hike in coal prices by CIL to hurt cement players
During the quarter, Coal India (CIL) selectively raised prices of
coal by a huge 30% for sectors whose products command
market-driven prices. The price hike included the cement sector,
as cement prices are market driven. Consequent to the
substantial increase in coal prices, power and fuel costs of
cement manufacturers are expected to increase, in turn
negatively impacting their operating margins.
Cement stocks - Performance on the bourses
During 4QFY2011, large-cap cement stocks in our coverage
universe outperformed the Sensex, which lost 5.2% during the
quarter. UltraTech Cement gained 4.8% and Ambuja Cements
rose by 2.8% during the quarter.
4QFY2011 expectations
Top line to decline by 1.6%
We expect pure cement players under our coverage to report a
1.6% yoy top-line decline. However, average realisations yoy
are expected to increase, with the highest improvement likely to
be recorded in the southern region.
Among pure cement players under our coverage, we expect
Madras Cement to post highest top-line growth of 6.1%, while
ACC is expected to post top-line growth of 2.7% during the
quarter. However, India Cements and JK Lakshmi Cement are
expected to post a top-line decline of 7.0% and 20.5%,
respectively, for the quarter.
Operating margins to decline
Operating margins of most pure cement players are expected
to decline on a yoy basis due to increased power and fuel costs.
However, India Cements and Madras Cements are expected to
record a margin increase of 375bp and 474bp yoy, aided by
higher cement prices in the south.
Outlook and valuation
Going ahead, we expect cement demand, which picked up in
4QFY2011, to gain further momentum in 1QFY2012. However,
the industry would be impacted by overcapacity till the end of
FY2012. Hence, we do not expect high prices to sustain. Also,
cement prices would witness a downward pressure with the
commencement of the monsoon season.
We maintain our Neutral view on large-cap cement players
such as ACC, Ambuja and UltraTech. We recommend
Accumulate on India Cements and maintain our Buy rating on
JK Lakshmi Cement
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cement
During January and February 2011, cement dispatches grew
by 3.1% yoy. Growth in dispatches was aided by the late
pick-up in demand post the cessation of monsoons in the
southern region. Similarly, construction activities picked up in
the northern region in February after the cold weather came to
an end. Demand improved in the west as well due to
improvement in availability of sand.
Performance of top players
During January and February 2011, Jaiprakash Associates
continued to remain the top performer with respect to growth
in dispatches, posting a 27.3% yoy jump in sales volumes to
2.8mn tonnes (mt) on the back of substantial capacity
addition. ACC reported 11.9% yoy growth in dispatches to
4.05mt, aided by higher capacity. Ambuja Cements' dispatches
grew by modest 5.1% yoy to 3.6mt.
Price situation
Improved demand across the country since February 2011
resulted in a surge in cement prices. Further, cement
manufacturers hiked prices by `6-8/bag across the country to
pass on the hike in excise duty due to announcement of the
new duty structure in the Union Budget. Currently, all-India
cement prices are trading at `270/bag, which is ~12% above
3QFY2011 average prices.
All-India capacity to increase by 28mt in FY2011
In FY2010, all-India cement capacity stood at 267mtpa.
In FY2011, the country's cement capacity is expected to increase
by 28mt and touch 295mt. The country’s cement capacity is
expected to increase further by 18mtpa in FY2012E.
Capacity utilisation
During 4QFY2011(Upto February 2011), all-India capacity
utilisation picked up slightly, increasing to 79% from 76% in
3QFY2011, on the back of low demand and new capacities
coming on stream. Overall, in FY2011, utilisation levels are
expected to be ~78%.
Union Budget 2011-12 – Neutral for the cement sector
The Union Budget 2011-12 is expected to have a neutral impact
on the cement sector. The most important budget announcement
concerning the cement sector pertained to changes in the excise
duty structure, which is likely to have an impact of `2-3/bag for
cement sold above `190; the impact is higher by
`4.5/bag for cement sold below `190, as per the new tax
regime. Post budget cement players have increased cement
prices on account of the hike in excise duty.
Global coal prices surge
Indian cement manufacturers are highly dependent on imported
coal due to relatively low coal linkages within India. The cement
industry gets ~45% of its requirement from domestic linkage
coal, while the remaining is procured from global markets and
the domestic open market. Global spot coal prices were
substantially higher on a yoy basis during the quarter. Average
prices of New Castle Mckloksey 6,700kc coal stood at
~US $129/tonne in 4QFY2011, as against US $95/tonne in
4QFY2010. Coal cost has surged by ~20% over the last three
months after the floods in Australia in December 2010, which
disrupted coal exports from the country.
The increase in coal prices is expected to result in higher power
costs for cement manufacturers during the quarter, which would
considerably impact margins.
Hike in coal prices by CIL to hurt cement players
During the quarter, Coal India (CIL) selectively raised prices of
coal by a huge 30% for sectors whose products command
market-driven prices. The price hike included the cement sector,
as cement prices are market driven. Consequent to the
substantial increase in coal prices, power and fuel costs of
cement manufacturers are expected to increase, in turn
negatively impacting their operating margins.
Cement stocks - Performance on the bourses
During 4QFY2011, large-cap cement stocks in our coverage
universe outperformed the Sensex, which lost 5.2% during the
quarter. UltraTech Cement gained 4.8% and Ambuja Cements
rose by 2.8% during the quarter.
4QFY2011 expectations
Top line to decline by 1.6%
We expect pure cement players under our coverage to report a
1.6% yoy top-line decline. However, average realisations yoy
are expected to increase, with the highest improvement likely to
be recorded in the southern region.
Among pure cement players under our coverage, we expect
Madras Cement to post highest top-line growth of 6.1%, while
ACC is expected to post top-line growth of 2.7% during the
quarter. However, India Cements and JK Lakshmi Cement are
expected to post a top-line decline of 7.0% and 20.5%,
respectively, for the quarter.
Operating margins to decline
Operating margins of most pure cement players are expected
to decline on a yoy basis due to increased power and fuel costs.
However, India Cements and Madras Cements are expected to
record a margin increase of 375bp and 474bp yoy, aided by
higher cement prices in the south.
Outlook and valuation
Going ahead, we expect cement demand, which picked up in
4QFY2011, to gain further momentum in 1QFY2012. However,
the industry would be impacted by overcapacity till the end of
FY2012. Hence, we do not expect high prices to sustain. Also,
cement prices would witness a downward pressure with the
commencement of the monsoon season.
We maintain our Neutral view on large-cap cement players
such as ACC, Ambuja and UltraTech. We recommend
Accumulate on India Cements and maintain our Buy rating on
JK Lakshmi Cement
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