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We hosted India Cements, the largest player in South Indian cement industry,
at our DB Access India conference. The key takeaways from the
meeting are
* South Indian demand, after seven consecutive quarters of negative
growth, has started to recover from 3QFY12 with a 11.5% growth. It has
continued into the fourth quarter primarily on the back of a pick-up in Government
projects in Tamil Nadu, improved real estate demand in Karnataka
and the rural demand in Andhra Pradesh.
* With only Jaypee's capacity pending commissioning, the demand recovery
in South should help capacity utilizations to improve strongly from the
60% utilization in the region. In this environment, the company expects the
prices to hold on, if not improve.
* Cost pressures in the form of higher power costs and railway freight rate
hike may have to be passed on as return ratios at current operating levels
are not remunerative.
* Next round of capacity additions too could take longer as the time for land
acquisition, forest clearances have extended. The capital cost (excluding
land and captive power) has also moved up to US$100-120.
* With regards to the company, the company is likely to focus on improving
the utilizations at their existing units and look at expansions in Himachal,
Madhya Pradesh only over the medium term. The company envisages becoming
a 20 mn tonne player (from 15.5 mn tones) over the next 3-4 years.
* Its current gross debt at INR 29 bn (the 0.75x debt to equity). Pending
capex of INR 5 bn over the next two years is largely towards the 50 MW
captive power plant in Andhra Pradesh, the coal mine in Indonesia and the
normal maintenance.
Given the improving industry utilizations, we continue to remain positive on
the Sector. At the current valuations, maintain Hold on India Cements. In
our coverage universe, we continue to maintain our overweights on ACC
(Buy) and Grasim (Buy).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We hosted India Cements, the largest player in South Indian cement industry,
at our DB Access India conference. The key takeaways from the
meeting are
* South Indian demand, after seven consecutive quarters of negative
growth, has started to recover from 3QFY12 with a 11.5% growth. It has
continued into the fourth quarter primarily on the back of a pick-up in Government
projects in Tamil Nadu, improved real estate demand in Karnataka
and the rural demand in Andhra Pradesh.
* With only Jaypee's capacity pending commissioning, the demand recovery
in South should help capacity utilizations to improve strongly from the
60% utilization in the region. In this environment, the company expects the
prices to hold on, if not improve.
* Cost pressures in the form of higher power costs and railway freight rate
hike may have to be passed on as return ratios at current operating levels
are not remunerative.
* Next round of capacity additions too could take longer as the time for land
acquisition, forest clearances have extended. The capital cost (excluding
land and captive power) has also moved up to US$100-120.
* With regards to the company, the company is likely to focus on improving
the utilizations at their existing units and look at expansions in Himachal,
Madhya Pradesh only over the medium term. The company envisages becoming
a 20 mn tonne player (from 15.5 mn tones) over the next 3-4 years.
* Its current gross debt at INR 29 bn (the 0.75x debt to equity). Pending
capex of INR 5 bn over the next two years is largely towards the 50 MW
captive power plant in Andhra Pradesh, the coal mine in Indonesia and the
normal maintenance.
Given the improving industry utilizations, we continue to remain positive on
the Sector. At the current valuations, maintain Hold on India Cements. In
our coverage universe, we continue to maintain our overweights on ACC
(Buy) and Grasim (Buy).
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