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India Cement
Jun-11: Muted Demand;
F2H12 Remains Key
Impact on our views: Based on the data for the Top 3
companies, we estimate industry volume growth at 2%
YoY and flat sequentially to 18mnt for month of Jun-11.
Demand trend remains challenging predominantly given
slowdown in construction and government spending in
last few quarters, while rural and housing demand is
relatively better, in our view.
ACC posts robust growth (given muted base) on a
relative basis; weak trend for Ambuja and Ultratech.
ACC reported 7% YoY growth on a low base given
capacity addition in the last 12-months. Ambuja Cement
(ACEM) and Ultratech reported flat volumes and 2%
growth, respectively. ACC’s volumes will remain better
relative to peers in next few months given base effect.
Our demand estimate could have downside risk. We
currently estimate demand growth at 6.5% for F2012e
on the back of expectation of recovery in demand in
F2H12e, given, muted base and some pick up in
demand in F2H12e. Given seasonal weakness in
demand coupled with weak underlying trends, there is
less likelihood of a positive surprise in the near term and
demand trend in F2H12e is critical, in our view.
Chanel checks indicate softening in cement prices,
realizations for QE Jun-11 however could surprise
positively. Based on our channel checks, we estimate
cement prices to have declined by Rs10-35 (per 50 kg
bag) in different regions with pricing being relatively
healthy in South India.
Notwithstanding this, we believe that average realization
for QE Jun-11 could improve marginally on QoQ basis
given a) higher exit realization for QE Mar-11 vs.
average for QE Mar-11 and b) price decline in current
quarter was back ended. However, costs are likely to
rise QoQ on the back of higher fuel cost. Consequently,
we estimate companies to report mix trend in margins
(ranging from marginal decline to improvement)
sequentially subjected to respective cost modalities,
which we believe will be a positive surprise for the markets
and could support near term stock performance. We expect
further softening in the near term given muted underlying
demand coupled with seasonal slowdown.
We retain our In-Line sector view for now given the lack of near
term positive trigger. We prefer to wait for better clarity to
emerge on demand / pricing front. Key risk is better than
expected pricing and demand growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Cement
Jun-11: Muted Demand;
F2H12 Remains Key
Impact on our views: Based on the data for the Top 3
companies, we estimate industry volume growth at 2%
YoY and flat sequentially to 18mnt for month of Jun-11.
Demand trend remains challenging predominantly given
slowdown in construction and government spending in
last few quarters, while rural and housing demand is
relatively better, in our view.
ACC posts robust growth (given muted base) on a
relative basis; weak trend for Ambuja and Ultratech.
ACC reported 7% YoY growth on a low base given
capacity addition in the last 12-months. Ambuja Cement
(ACEM) and Ultratech reported flat volumes and 2%
growth, respectively. ACC’s volumes will remain better
relative to peers in next few months given base effect.
Our demand estimate could have downside risk. We
currently estimate demand growth at 6.5% for F2012e
on the back of expectation of recovery in demand in
F2H12e, given, muted base and some pick up in
demand in F2H12e. Given seasonal weakness in
demand coupled with weak underlying trends, there is
less likelihood of a positive surprise in the near term and
demand trend in F2H12e is critical, in our view.
Chanel checks indicate softening in cement prices,
realizations for QE Jun-11 however could surprise
positively. Based on our channel checks, we estimate
cement prices to have declined by Rs10-35 (per 50 kg
bag) in different regions with pricing being relatively
healthy in South India.
Notwithstanding this, we believe that average realization
for QE Jun-11 could improve marginally on QoQ basis
given a) higher exit realization for QE Mar-11 vs.
average for QE Mar-11 and b) price decline in current
quarter was back ended. However, costs are likely to
rise QoQ on the back of higher fuel cost. Consequently,
we estimate companies to report mix trend in margins
(ranging from marginal decline to improvement)
sequentially subjected to respective cost modalities,
which we believe will be a positive surprise for the markets
and could support near term stock performance. We expect
further softening in the near term given muted underlying
demand coupled with seasonal slowdown.
We retain our In-Line sector view for now given the lack of near
term positive trigger. We prefer to wait for better clarity to
emerge on demand / pricing front. Key risk is better than
expected pricing and demand growth.
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