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Investor interaction
We hosted Mr. Ashok Bhandari, CFO for an investor interaction in Mumbai. He
expressed disappointment over the weak demand growth trend for the past
several months. The supply pressures are likely to continue for the next 4-6
quarters and cement pricing should remain under pressure in the medium
term, therefore. Petcoke prices have been softening and the trend is likely to
continue, thanks to new refining capacities coming on-stream in the next few
months. Management would wait for greater clarity in the cement business
before announcing next round of expansions. Concerns also persist in power
business where it plans to sell higher units under contracts now.
Muted demand is a concern for the industry
q The recent demand trend has been a disappointment; in the past, whenever
annual demand growth lagged GDP, the next year growth had been quite strong
(which compensated for the earlier year’s weakness).
q Despite a weak FY11 (<5%), demand trend has been weak in the first two months
of FY12 and the trend is expected to continue in the next few months.
q It is difficult to gauge reasons for demand slowdown given that ~90% of the sales
are through retail (difficult to estimate sector-wise usage); overall slowdown in
corporate capex, weak infra spending etc. could be the reasons.
q The management expects excess supply to continue for the next 4-6 quarters.
Cement prices to be under pressure; lower petcoke prices to help
q Weak industry demand-supply would continue to weigh on the cement prices,
which are also likely to remain under pressure in the medium term.
q While seasonality would play a role, on the whole, a low utilisation level would cap
significant upside on cement pricing.
q Petcoke prices (4Q: US$140/t) have been showing a downward trend and the
management expects further declines, thanks to new refining capacities in north.
Power business, not as lucrative now; New 300MW to come up by Sep-11
q The weakness in merchant power rates too has been disappointing; the weakness
in merchant power demand (and tariff) shall result in lower in PLF.
q The management expects realisations to trend down from Rs4.6/unit in 4QFY11;
new capacities (300MW) would come up by Sep-11, which should help.
q SRCM plans to sell higher units in contract (cf. earlier strategy of selling more units
in merchant) which should reduce cyclicality (may restrict margin upside, though).
No expansion plans in the near-term; entry barriers rising in cement
q Despite its positive long term outlook for cement, the management would look for
an improvement in the cycle before announcing next round of expansions.
q The management views high capex as well as physical resource constraints like
land, fresh mining lease approvals as key entry barriers in the cement business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investor interaction
We hosted Mr. Ashok Bhandari, CFO for an investor interaction in Mumbai. He
expressed disappointment over the weak demand growth trend for the past
several months. The supply pressures are likely to continue for the next 4-6
quarters and cement pricing should remain under pressure in the medium
term, therefore. Petcoke prices have been softening and the trend is likely to
continue, thanks to new refining capacities coming on-stream in the next few
months. Management would wait for greater clarity in the cement business
before announcing next round of expansions. Concerns also persist in power
business where it plans to sell higher units under contracts now.
Muted demand is a concern for the industry
q The recent demand trend has been a disappointment; in the past, whenever
annual demand growth lagged GDP, the next year growth had been quite strong
(which compensated for the earlier year’s weakness).
q Despite a weak FY11 (<5%), demand trend has been weak in the first two months
of FY12 and the trend is expected to continue in the next few months.
q It is difficult to gauge reasons for demand slowdown given that ~90% of the sales
are through retail (difficult to estimate sector-wise usage); overall slowdown in
corporate capex, weak infra spending etc. could be the reasons.
q The management expects excess supply to continue for the next 4-6 quarters.
Cement prices to be under pressure; lower petcoke prices to help
q Weak industry demand-supply would continue to weigh on the cement prices,
which are also likely to remain under pressure in the medium term.
q While seasonality would play a role, on the whole, a low utilisation level would cap
significant upside on cement pricing.
q Petcoke prices (4Q: US$140/t) have been showing a downward trend and the
management expects further declines, thanks to new refining capacities in north.
Power business, not as lucrative now; New 300MW to come up by Sep-11
q The weakness in merchant power rates too has been disappointing; the weakness
in merchant power demand (and tariff) shall result in lower in PLF.
q The management expects realisations to trend down from Rs4.6/unit in 4QFY11;
new capacities (300MW) would come up by Sep-11, which should help.
q SRCM plans to sell higher units in contract (cf. earlier strategy of selling more units
in merchant) which should reduce cyclicality (may restrict margin upside, though).
No expansion plans in the near-term; entry barriers rising in cement
q Despite its positive long term outlook for cement, the management would look for
an improvement in the cycle before announcing next round of expansions.
q The management views high capex as well as physical resource constraints like
land, fresh mining lease approvals as key entry barriers in the cement business.
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