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UBS Investment Research
India Cement Industry
S equential decline in volume growth
Event: Sep volumes—Ultratech -3%, ACC/Ambuja/JPA +10%/2%/17% YoY
September cement dispatches for UltraTech declined 3.2% YoY (-9.9% MoM) to
2.76mt. Ambuja’s volumes increased 1.9% YoY (+2.3% YoY including clinker,
+2.9% MoM) to 1.51mt, aided by capacity additions at Maratha. ACC’s volumes
rose 9.5% YoY to 1.73mt (-8% MoM) due to Chanda capacity additions and a
lower base last year. JPA’s volumes rose 17% YoY (+2.5% MoM) to 1.35mt
(including clinker).
Impact: Industry dispatches grew 3.3% YoY during April-August 2011
Industry dispatches increased 3.3% YoY in April-August 2011, the slowest growth
since FY02 (7.9% CAGR). Dispatches for ACC/JPA rose 15%/13% and those for
UltraTech/Ambuja remained flat YoY YTD (April-September 2011). Industry data
for September 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 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 Industries. We also have a Buy rating on
Jaiprakash Associates as we think its valuations are attractive.
Statement of Risk
We believe the key risk to our outlook on the sector could come from an
unexpected fall in cement prices, increase in input costs such as coal/freight, and
any government intervention to lower cement prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Cement Industry
S equential decline in volume growth
Event: Sep volumes—Ultratech -3%, ACC/Ambuja/JPA +10%/2%/17% YoY
September cement dispatches for UltraTech declined 3.2% YoY (-9.9% MoM) to
2.76mt. Ambuja’s volumes increased 1.9% YoY (+2.3% YoY including clinker,
+2.9% MoM) to 1.51mt, aided by capacity additions at Maratha. ACC’s volumes
rose 9.5% YoY to 1.73mt (-8% MoM) due to Chanda capacity additions and a
lower base last year. JPA’s volumes rose 17% YoY (+2.5% MoM) to 1.35mt
(including clinker).
Impact: Industry dispatches grew 3.3% YoY during April-August 2011
Industry dispatches increased 3.3% YoY in April-August 2011, the slowest growth
since FY02 (7.9% CAGR). Dispatches for ACC/JPA rose 15%/13% and those for
UltraTech/Ambuja remained flat YoY YTD (April-September 2011). Industry data
for September 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 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 Industries. We also have a Buy rating on
Jaiprakash Associates as we think its valuations are attractive.
Statement of Risk
We believe the key risk to our outlook on the sector could come from an
unexpected fall in cement prices, increase in input costs such as coal/freight, and
any government intervention to lower cement prices.
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