UBS:: Cement July volumes: strong growth, also aided by low base and capacity additions

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UBS Investment Research
Indian Cement Industry
July volumes: strong growth, also aided by
l ow base and capacity additions
�� Event: July volumes—Ultratech/ACC/Ambuja/JPA +7%/28%/17%/18%
July cement dispatches for UltraTech rose by 7.3% YoY (-2.8% MoM) to 3.1mt.
Ambuja’s volumes increased 17% YoY (+14% YoY including clinker, flat MoM)
to 1.66mt, aided by capacity addition at Maratha and lower volumes last year.
ACC’s volume rose 28% YoY to 2mt (+4.7% MoM) due to the combined effect of
low base in 2010 and Chanda capacity addition. Jaiprakash’s volumes increased
~18% YoY to 1.5mt (+5.6% MoM). In July-10, volumes of ACC/Ambuja had
declined by 12.4%/1.3% YoY.
�� Impact: Industry dispatches have remained flat till June
Industry dispatches remained flat over Apr-Jun 2011, the lowest growth in the past
10 years (7.2% CAGR). Dispatches for ACC/JPA rose 15.6%/13.9% and those for
UltraTech/Ambuja remained flat YoY YTD (April-Jul 2011). Industry data for
July is not yet available. Combined dispatches of these companies (together
comprising 47% of industry sales in FY11) has increased 5.5% YoY YTD.
�� Action: We are cautious on the sector
We are cautious on India’s cement sector due to: 1) industry over-capacity led by
large capacity additions; 2) weak demand; 3) rising input costs that are likely to
keep profitability in check; and 4) increasing industry fragmentation across regions
that could impact pricing power.
�� Valuation: Grasim remains our preferred pick
Our preferred pick in the sector is Grasim. We also have a Buy rating on
Jaiprakash Associates as we think its valuations are attractive.