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UBS Investment Research
Indian Cement Industry
W eak volume growth, except for ACC
Event: August volumes of Ultratech/ACC/Ambuja +3.3/19.7/2.6% YoY
Despite a low base, dispatch volumes of large companies such as Ultratech and
Ambuja grew about 3% YoY in August—UltraTech +3.3% YoY (-2.2% MoM;
volumes last year were up 2.4% YoY) to 3.06mt and Ambuja +2.6% YoY (+2.7%
YoY including clinker, -11.6% MoM) to 1.47mt (aided by Maratha capacity
addition and a low base; volumes last year were flat). ACC, however, had a
volume growth of 19.7% YoY to 1.88mt (-6% MoM), aided by Chanda capacity
addition and a lower base last year (volumes had declined 4.8% last year).
Impact: industry dispatches grew 2.7% YoY during April-July 2011
Industry dispatches increased 2.7% YoY in April-July 2011, the lowest since FY02
(7.8% CAGR). Dispatches for ACC rose 16.3% and those for UltraTech and
Ambuja remained flat YoY YTD (April-August 2011). Industry data for August is
not yet available. Combined dispatches of these companies (together comprising
39% of industry sales in FY11) has increased 4.6% YoY YTD. We forecast
industry volumes to grow 6% in FY12.
Action: we are cautious on the sector
We believe the risk-reward profile is not favourable as: 1) overcapacity is severe
and is likely to continue for the next two to three years; 2) industry fragmentation
is increasing; 3) earnings risk is high as it is difficult to forecast sustainability of
pricing discipline; and 4) stocks are trading at a premium to replacement cost.
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.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Indian Cement Industry
W eak volume growth, except for ACC
Event: August volumes of Ultratech/ACC/Ambuja +3.3/19.7/2.6% YoY
Despite a low base, dispatch volumes of large companies such as Ultratech and
Ambuja grew about 3% YoY in August—UltraTech +3.3% YoY (-2.2% MoM;
volumes last year were up 2.4% YoY) to 3.06mt and Ambuja +2.6% YoY (+2.7%
YoY including clinker, -11.6% MoM) to 1.47mt (aided by Maratha capacity
addition and a low base; volumes last year were flat). ACC, however, had a
volume growth of 19.7% YoY to 1.88mt (-6% MoM), aided by Chanda capacity
addition and a lower base last year (volumes had declined 4.8% last year).
Impact: industry dispatches grew 2.7% YoY during April-July 2011
Industry dispatches increased 2.7% YoY in April-July 2011, the lowest since FY02
(7.8% CAGR). Dispatches for ACC rose 16.3% and those for UltraTech and
Ambuja remained flat YoY YTD (April-August 2011). Industry data for August is
not yet available. Combined dispatches of these companies (together comprising
39% of industry sales in FY11) has increased 4.6% YoY YTD. We forecast
industry volumes to grow 6% in FY12.
Action: we are cautious on the sector
We believe the risk-reward profile is not favourable as: 1) overcapacity is severe
and is likely to continue for the next two to three years; 2) industry fragmentation
is increasing; 3) earnings risk is high as it is difficult to forecast sustainability of
pricing discipline; and 4) stocks are trading at a premium to replacement cost.
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.
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