Our latest channel check indicates a subdued demand across regions, largely due to a pick-up in monsoons. Over the month, cement prices have declined by ~INR3-60/ bag in the trade category and by ~INR5-50/ bag in the non-trade category across regions. While the current all India average price (for trade category) is down ~4% vs the average of Q1FY13, the average so far in Q2FY13 is down just 1% QoQ (as compared to a dip of ~6%-8% QoQ seen in Q2 of each of the last two years). While the recent hike in diesel prices will increase freight costs for our coverage companies in the range of INR70-100 per tonne, we believe the industry will be able to pass it on to consumers.
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August 2012 industry despatches rise by just ~1% YoY
Industry despatches for August 2012 are estimated to have risen by just ~1% YoY with a capacity utilisation of ~66% (refer Table 2 for company wise break-up).
Note: CMA has stopped reporting industry data since June 2012.
Regional price trends: Sharp correction in Central region
As compared to prices on 10th August 2012, current cement prices are down ~INR3-60 per bag in trade and ~INR5-50 per bag in non-trade category across regions. On a region-wise average price basis, the sharpest correction (of ~8%) was witnessed in Central region while prices corrected the least (~3%) in the Western region. While dealers currently have a mixed opinion about whether companies will be able to pass on the diesel cost hike, historically, the industry has always managed to pass on this cost to consumers.
Impact of diesel price hike: Neutral
The Government has increased diesel prices by INR5.85 per litre (by 13.7%) w.e.f. 14th September 2012. As a result, the freight cost for companies under our coverage is expected to increase in the range of ~INR70-100 per tonne (depending upon their transport mix. See the working in the Table 1). We believe that the cost hike will help arrest the current downfall in cement prices and aid a price recovery. Estimate neutral impact on earnings.
Regards,
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