Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cement
Cement price cuts start; Time to start cutting position
in cement?-We think so
• Most dealer checks indicate cement price cuts/discounts having
started: After a very sharp cement price increase over Feb. to mid-
March, our recent dealer checks indicate cement price cuts/discounts
being given out in many regions as demand has (not surprisingly)
weakened after the spurt seen in Feb. to mid-March. The key markets
where cement price cuts/discounts have started are a) pockets of
Northern India (Rs5-/bag; 2-3%), b) pockets in AP in South India
(Rs8-10/bag, 3-4%), c) Central India (Rs5-15/bag, 3-5%), and d)
pockets of Western India (Rs5-/bag; 2-3%). Prices did go up very
sharply across most parts of India in the preceding two months, and
hence even after this seemingly minor price correction, margins should
still be good across the sector. However, given that we have just started
April and demand is not picking up, we would not be surprised to see a
further cement price correction. April generally is a weak month
following a strong March, and over the past five years, the m/m decline
has been 8-10%. However, this was in the context of a very strong
overall construction situation in the country. Over the last few months,
construction has been weak, and we would not be surprised to see a
larger m/m drop. The base looks challenging for the next two months,
after which comparing y/y demand until September becomes difficult as
it would depend on rains in a particular month.
• Anecdotal end demand suggests no pick-up so far in low-cost
housing in AP, government projects in UP: While cement dealers did
say that the letters from the housing board for low-cost housing have
come through, an actual pick-up has not started. Also the quantum
according to dealers is far lower than what it was at peak, although given
the demand situation in AP, any new avenue of demand would, in our
view, be positive. Government projects have not really started in UP. We
believe UP demand remains critical given expectations of a pick-up from
pre-election spending.
• Cement stocks: Nice run-up; time to take some money off the table:
We would look to book profits in the large-cap cement names such as
ACC, (+20%) ACEM (+30%), and to an extent UTCEM (+22%), which
have enjoyed a nice-run up since the beginning of February (when
cement prices started moving up sharply). Given that the cement pricing
environment seems to have peaked for the time being, while cement sales
volume and coal costs continue to look challenging, we believe stocks
lack catalysts to push them higher and we foresee the trade reversing.
ACC at $150 EV/MT and ACEM at $165/MT EV/MT are significantly
ahead of UTCEM at $125/MT.
• Demand-Supply imbalance continues: We expect FY11 demand to
close at ~210/MT, while headline capacity should be near 290MT.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cement
Cement price cuts start; Time to start cutting position
in cement?-We think so
• Most dealer checks indicate cement price cuts/discounts having
started: After a very sharp cement price increase over Feb. to mid-
March, our recent dealer checks indicate cement price cuts/discounts
being given out in many regions as demand has (not surprisingly)
weakened after the spurt seen in Feb. to mid-March. The key markets
where cement price cuts/discounts have started are a) pockets of
Northern India (Rs5-/bag; 2-3%), b) pockets in AP in South India
(Rs8-10/bag, 3-4%), c) Central India (Rs5-15/bag, 3-5%), and d)
pockets of Western India (Rs5-/bag; 2-3%). Prices did go up very
sharply across most parts of India in the preceding two months, and
hence even after this seemingly minor price correction, margins should
still be good across the sector. However, given that we have just started
April and demand is not picking up, we would not be surprised to see a
further cement price correction. April generally is a weak month
following a strong March, and over the past five years, the m/m decline
has been 8-10%. However, this was in the context of a very strong
overall construction situation in the country. Over the last few months,
construction has been weak, and we would not be surprised to see a
larger m/m drop. The base looks challenging for the next two months,
after which comparing y/y demand until September becomes difficult as
it would depend on rains in a particular month.
• Anecdotal end demand suggests no pick-up so far in low-cost
housing in AP, government projects in UP: While cement dealers did
say that the letters from the housing board for low-cost housing have
come through, an actual pick-up has not started. Also the quantum
according to dealers is far lower than what it was at peak, although given
the demand situation in AP, any new avenue of demand would, in our
view, be positive. Government projects have not really started in UP. We
believe UP demand remains critical given expectations of a pick-up from
pre-election spending.
• Cement stocks: Nice run-up; time to take some money off the table:
We would look to book profits in the large-cap cement names such as
ACC, (+20%) ACEM (+30%), and to an extent UTCEM (+22%), which
have enjoyed a nice-run up since the beginning of February (when
cement prices started moving up sharply). Given that the cement pricing
environment seems to have peaked for the time being, while cement sales
volume and coal costs continue to look challenging, we believe stocks
lack catalysts to push them higher and we foresee the trade reversing.
ACC at $150 EV/MT and ACEM at $165/MT EV/MT are significantly
ahead of UTCEM at $125/MT.
• Demand-Supply imbalance continues: We expect FY11 demand to
close at ~210/MT, while headline capacity should be near 290MT.
No comments:
Post a Comment