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4Q FY11 preview – Profitability likely better qoq
Improvement in demand compared with the previous two quarters, but not a full-fledged
recovery.
Cement prices up Rs20-25/bag compared with the previous quarter, mainly due to
producer discipline.
We expect power and fuel costs to be a bit higher this quarter given rise in thermal coal
prices.
The 23% increase in budgetary allocation for infrastructure likely to boost demand going
forward.
We prefer ACC among our coverage universe.
Demand coming back
Our channel checks suggest that demand is returning, but we can’t term it a full recovery yet.
Major cement companies’ dispatches also show a similar trend. Weak demand growth in the
previous year was mainly due to the delay in construction projects, political instability in some key
cement consuming states, low credit growth and high interest rates.
The previous quarter started on a positive note, with dispatches growing 18-20%. This was partly
due to dealer stocking in anticipation of both demand pick up and price rise. Though there was an
increase in prices, demand remained sluggish mainly because of a slowdown in construction
activity due to extended rains, labor unavailability and shortage of sand. If we discount growth in
October, demand growth has been less than 5% since Jun ’10.
In CY11, we expect dispatches to improve a bit but do not yet call it a full-fledged recovery. The
latest dispatch data for Mar ’11 show that ACC’s dispatch numbers grew 12% yoy, whereas
Ambuja’s and UltraTech’s grew around 5% and 2% yoy, respectively. We believe cement
companies are likely to report better volume numbers qoq.
Cement prices are up by Rs20-25/bag
Although demand growth has not been very strong, the price of cement has risen significantly in
all regions, primarily because of producer discipline. Even with overcapacity, there is no
significant oversupply.
Prices have climbed further in Mar ’11. We thus expect companies to report significantly higher
realization compared with the previous quarter.
Power and fuel cost to climb
The price of thermal coal has rallied since Oct ’10 and is much higher yoy. Even though some
companies have coal linkages, coal supply has not been regular. Given supply issues, most
companies have had to rely on imports. Consequently, we expect power and fuel costs to be
significantly higher than in the same quarter last year.
Demand outlook looks better
During Apr-Nov 2010, credit flow to key infrastructure sectors that consume cement declined by
Rs143bn yoy. Most of the growth in credit flow went to telecom. However, since infrastructure
spend is stated to increase by 23% this year to Rs2,140bn, we expect cement consumption to
increase.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4Q FY11 preview – Profitability likely better qoq
Improvement in demand compared with the previous two quarters, but not a full-fledged
recovery.
Cement prices up Rs20-25/bag compared with the previous quarter, mainly due to
producer discipline.
We expect power and fuel costs to be a bit higher this quarter given rise in thermal coal
prices.
The 23% increase in budgetary allocation for infrastructure likely to boost demand going
forward.
We prefer ACC among our coverage universe.
Demand coming back
Our channel checks suggest that demand is returning, but we can’t term it a full recovery yet.
Major cement companies’ dispatches also show a similar trend. Weak demand growth in the
previous year was mainly due to the delay in construction projects, political instability in some key
cement consuming states, low credit growth and high interest rates.
The previous quarter started on a positive note, with dispatches growing 18-20%. This was partly
due to dealer stocking in anticipation of both demand pick up and price rise. Though there was an
increase in prices, demand remained sluggish mainly because of a slowdown in construction
activity due to extended rains, labor unavailability and shortage of sand. If we discount growth in
October, demand growth has been less than 5% since Jun ’10.
In CY11, we expect dispatches to improve a bit but do not yet call it a full-fledged recovery. The
latest dispatch data for Mar ’11 show that ACC’s dispatch numbers grew 12% yoy, whereas
Ambuja’s and UltraTech’s grew around 5% and 2% yoy, respectively. We believe cement
companies are likely to report better volume numbers qoq.
Cement prices are up by Rs20-25/bag
Although demand growth has not been very strong, the price of cement has risen significantly in
all regions, primarily because of producer discipline. Even with overcapacity, there is no
significant oversupply.
Prices have climbed further in Mar ’11. We thus expect companies to report significantly higher
realization compared with the previous quarter.
Power and fuel cost to climb
The price of thermal coal has rallied since Oct ’10 and is much higher yoy. Even though some
companies have coal linkages, coal supply has not been regular. Given supply issues, most
companies have had to rely on imports. Consequently, we expect power and fuel costs to be
significantly higher than in the same quarter last year.
Demand outlook looks better
During Apr-Nov 2010, credit flow to key infrastructure sectors that consume cement declined by
Rs143bn yoy. Most of the growth in credit flow went to telecom. However, since infrastructure
spend is stated to increase by 23% this year to Rs2,140bn, we expect cement consumption to
increase.
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