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India Cement
Key Takeaways From Post
Result Management Calls
Quick Comment – Impact on our views: We attended
conference calls hosted by southern-based cement
companies (Sagar Cement and Rain Commodities – not
covered) after QE Mar-11 results. Key takeaways are:
1) Management commented that the trade-off between
market share vs. profitability is a positive for the industry.
Rain Commodities’ management commented that they
are focusing on profitability and not purely on market
share. Sagar management highlighted that that it
expects F12 cement capacity utilization of 65-70% (in
line with F11), implying flat volumes for F12.
This reflects that cement company managements are
focusing on profitable growth and not purely market
share. In our view, demand remains critical for the
industry, and in the next few month prices will be volatile
around demand, given seasonal factors. We believe that
the demand recovery (we expect demand to pick up in
F2H12) will support cement prices and drive positive
earnings momentum.
2) Demand remains muted in the state of Andhra
Pradesh (AP). Current demand in AP is driven by semi
urban / rural demand, while infrastructure is weak.
According to Sagar management, while there was some
expectation of a pick-up in government projects in AP
(low-cost housing projects), nothing has happened. It
believes that while the demand trend in AP remains
challenging, it should be better than the weak trend
observed in F11 (-15% YoY). Demand in other southern
states, Tamil Nadu and Karnataka, is better than in AP,
but below company expectations.
3) Pricing, however, remains strong – current cement
prices being marginally higher relative to the QE Mar-11
average. We expect this to be sustained until the
monsoon, after which it could be volatile on seasonality.
Our In-Line industry view is based on: 1) our view that
near term earnings will be muted, given moderation in
prices and rising costs (coal), and 2) rich valuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Cement
Key Takeaways From Post
Result Management Calls
Quick Comment – Impact on our views: We attended
conference calls hosted by southern-based cement
companies (Sagar Cement and Rain Commodities – not
covered) after QE Mar-11 results. Key takeaways are:
1) Management commented that the trade-off between
market share vs. profitability is a positive for the industry.
Rain Commodities’ management commented that they
are focusing on profitability and not purely on market
share. Sagar management highlighted that that it
expects F12 cement capacity utilization of 65-70% (in
line with F11), implying flat volumes for F12.
This reflects that cement company managements are
focusing on profitable growth and not purely market
share. In our view, demand remains critical for the
industry, and in the next few month prices will be volatile
around demand, given seasonal factors. We believe that
the demand recovery (we expect demand to pick up in
F2H12) will support cement prices and drive positive
earnings momentum.
2) Demand remains muted in the state of Andhra
Pradesh (AP). Current demand in AP is driven by semi
urban / rural demand, while infrastructure is weak.
According to Sagar management, while there was some
expectation of a pick-up in government projects in AP
(low-cost housing projects), nothing has happened. It
believes that while the demand trend in AP remains
challenging, it should be better than the weak trend
observed in F11 (-15% YoY). Demand in other southern
states, Tamil Nadu and Karnataka, is better than in AP,
but below company expectations.
3) Pricing, however, remains strong – current cement
prices being marginally higher relative to the QE Mar-11
average. We expect this to be sustained until the
monsoon, after which it could be volatile on seasonality.
Our In-Line industry view is based on: 1) our view that
near term earnings will be muted, given moderation in
prices and rising costs (coal), and 2) rich valuations.
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