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CEMENT
Cement prices came off from the highs witnessed during Q1FY12 due to lack
of demand as well as monsoons. Supply discipline which was witnessed in
past two quarters across various regions could not be sustained during
Q2FY12 except in southern region. Thus, on a sequential basis, cement
realizations for companies are likely to come down during Q2FY12. We
expect revenues in our coverage universe to decline by 13% on QoQ basis
and grow by 18.1% on YoY basis. Operating margins are expected to come
down sequentially due to fall in cement prices and net profit during Q2FY12
is expected to decline by 39% QoQ due to lower volumes and higher costs
but is expected to improve on yearly basis.
Cement demand for the period Apr-Aug, 2011 stood at 3.5% and we expect
full year demand to grow by nearly 6% during FY12 led by higher
construction activity in H2FY12 as well as better monsoons. We expect
cement demand to grow by 10% during FY13 but we believe that this
growth would still not be sufficient to absorb higher supplies. We thus
continue to maintain our cautious stance on the sector and would only
recommend players which are available at attractive valuations. Our top pick
in the cement sector is Grasim industries.
Demand growth during Q2FY12
During Q2FY12, cement dispatches were impacted by monsoons, lower than expected
demand growth as well as unrest over Telangana issue in AP. Cement dispatches
in north were largely impacted by scrapping of land acquisition in Greater
Noida by Supreme Court which impacted real estate construction. Dispatches in
south were impacted by transportation hiccups due to Telangana issue in AP while
monsoons impacted the dispatch growth in eastern and western region. We expect
cement demand to start witnessing improvement during H2FY12 led by improvement
in construction activity as well as rural spending.
Cost pressures likely to peak out by Q2FY12
Costs are likely to remain high during Q2FY12 due to higher coal prices as well as
freight expenses. Companies dependent upon imported coal and raw materials are
likely to witness higher costs due to rupee depreciation. Along with this, due to decline
in cement prices during Q2FY12, EBITDA/tonne is likely to decline on a sequential
basis. Cement prices have recovered by nearly Rs 10 per bag during Sep,2011
and company managements have indicated that cost pressures would also peak out
during Q2FY12/Q3FY12. Thus, EBITDA/tonne is expected to stabilize post Q2FY12/
Q3FY12..
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
CEMENT
Cement prices came off from the highs witnessed during Q1FY12 due to lack
of demand as well as monsoons. Supply discipline which was witnessed in
past two quarters across various regions could not be sustained during
Q2FY12 except in southern region. Thus, on a sequential basis, cement
realizations for companies are likely to come down during Q2FY12. We
expect revenues in our coverage universe to decline by 13% on QoQ basis
and grow by 18.1% on YoY basis. Operating margins are expected to come
down sequentially due to fall in cement prices and net profit during Q2FY12
is expected to decline by 39% QoQ due to lower volumes and higher costs
but is expected to improve on yearly basis.
Cement demand for the period Apr-Aug, 2011 stood at 3.5% and we expect
full year demand to grow by nearly 6% during FY12 led by higher
construction activity in H2FY12 as well as better monsoons. We expect
cement demand to grow by 10% during FY13 but we believe that this
growth would still not be sufficient to absorb higher supplies. We thus
continue to maintain our cautious stance on the sector and would only
recommend players which are available at attractive valuations. Our top pick
in the cement sector is Grasim industries.
Demand growth during Q2FY12
During Q2FY12, cement dispatches were impacted by monsoons, lower than expected
demand growth as well as unrest over Telangana issue in AP. Cement dispatches
in north were largely impacted by scrapping of land acquisition in Greater
Noida by Supreme Court which impacted real estate construction. Dispatches in
south were impacted by transportation hiccups due to Telangana issue in AP while
monsoons impacted the dispatch growth in eastern and western region. We expect
cement demand to start witnessing improvement during H2FY12 led by improvement
in construction activity as well as rural spending.
Cost pressures likely to peak out by Q2FY12
Costs are likely to remain high during Q2FY12 due to higher coal prices as well as
freight expenses. Companies dependent upon imported coal and raw materials are
likely to witness higher costs due to rupee depreciation. Along with this, due to decline
in cement prices during Q2FY12, EBITDA/tonne is likely to decline on a sequential
basis. Cement prices have recovered by nearly Rs 10 per bag during Sep,2011
and company managements have indicated that cost pressures would also peak out
during Q2FY12/Q3FY12. Thus, EBITDA/tonne is expected to stabilize post Q2FY12/
Q3FY12..
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