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CEMENT
Cement demand in the current fiscal till Feb, 11 registered a growth of 4.7%
due to lack of construction activity, extended monsoons, non-availability of
sand as well as extreme winter seen in northern region. During Q4FY11,
cement prices witnessed sharp increases across several regions which is
expected to drive strong revenue growth during Q4FY11. However, our
recent interactions with cement dealers indicate that further increase in
cement prices look difficult from the current levels but these prices may
remain sustained till monsoons.
Overall costs for the sector continued to remain high during the quarter due
to higher freight costs as well as power and fuel costs. But due to sharp
price hikes witnessed during Q4FY11, operating margins are expected to
improve on a sequential basis for the companies.
Though demand growth is expected to improve in FY12, but we believe that
it will not be sufficient to absorb the surplus capacity. We also expect the
demand-supply gap to remain wide for next 1.5-2 years due to large capacity
additions seen in last 2 years along with additions expected going ahead.
Thus on a long term basis, we continue to maintain our cautious stance on
the sector. However in the near term, we expect cement companies to post
sequential improvement in revenues and margins owing to sharp price hikes
seen in Q4FY11.
We would thus recommend only those players which are expected to
benefit significantly from the recent price hikes and are available at
attractive valuations. We would thus recommend ACCUMULATE on Grasim,
Ultratech Cements and Shree Cements while we continue to maintain
REDUCE on India Cements and ACC.
Key highlights during Q4FY11
Demand growth likely to improve in FY12
Demand growth for the sector during FY11 till Feb, 2011 stood at 4.7%. Demand
growth during fiscal 2011 was impacted by lack of infrastructure activity, issues related
to sand availability, extended monsoons as well as extreme winter. We expect
demand growth to improve by 10% in FY12 led by increased project awards in various
infrastructure segments.
Cement prices stayed strong during Q4FY11
Cement prices stayed strong during Q4FY11 across all regions on supply discipline
being observed among cement players. Prices have reached as high as Rs 300 per
bag in key regions during the month of March, 2011 as against average prices of
nearly Rs 225-230 per bag at the end of Dec, 2010. Thus we believe that net realizations
for cement companies for Q4FY11 are expected to improve sequentially,
thereby translating into healthy growth in revenues for Q4FY11.
Cost pressures remained high
Costs pressures during Q4FY11 are expected to remain high with higher freight costs
as well as higher coal costs. But with increase in the cement prices, EBITDA/tonne
for the companies is likely to witness an improvement during Q4FY11.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CEMENT
Cement demand in the current fiscal till Feb, 11 registered a growth of 4.7%
due to lack of construction activity, extended monsoons, non-availability of
sand as well as extreme winter seen in northern region. During Q4FY11,
cement prices witnessed sharp increases across several regions which is
expected to drive strong revenue growth during Q4FY11. However, our
recent interactions with cement dealers indicate that further increase in
cement prices look difficult from the current levels but these prices may
remain sustained till monsoons.
Overall costs for the sector continued to remain high during the quarter due
to higher freight costs as well as power and fuel costs. But due to sharp
price hikes witnessed during Q4FY11, operating margins are expected to
improve on a sequential basis for the companies.
Though demand growth is expected to improve in FY12, but we believe that
it will not be sufficient to absorb the surplus capacity. We also expect the
demand-supply gap to remain wide for next 1.5-2 years due to large capacity
additions seen in last 2 years along with additions expected going ahead.
Thus on a long term basis, we continue to maintain our cautious stance on
the sector. However in the near term, we expect cement companies to post
sequential improvement in revenues and margins owing to sharp price hikes
seen in Q4FY11.
We would thus recommend only those players which are expected to
benefit significantly from the recent price hikes and are available at
attractive valuations. We would thus recommend ACCUMULATE on Grasim,
Ultratech Cements and Shree Cements while we continue to maintain
REDUCE on India Cements and ACC.
Key highlights during Q4FY11
Demand growth likely to improve in FY12
Demand growth for the sector during FY11 till Feb, 2011 stood at 4.7%. Demand
growth during fiscal 2011 was impacted by lack of infrastructure activity, issues related
to sand availability, extended monsoons as well as extreme winter. We expect
demand growth to improve by 10% in FY12 led by increased project awards in various
infrastructure segments.
Cement prices stayed strong during Q4FY11
Cement prices stayed strong during Q4FY11 across all regions on supply discipline
being observed among cement players. Prices have reached as high as Rs 300 per
bag in key regions during the month of March, 2011 as against average prices of
nearly Rs 225-230 per bag at the end of Dec, 2010. Thus we believe that net realizations
for cement companies for Q4FY11 are expected to improve sequentially,
thereby translating into healthy growth in revenues for Q4FY11.
Cost pressures remained high
Costs pressures during Q4FY11 are expected to remain high with higher freight costs
as well as higher coal costs. But with increase in the cement prices, EBITDA/tonne
for the companies is likely to witness an improvement during Q4FY11.
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