Retail prices under pressure
We interacted with cement dealers across India (27 cities)
to get a sense on the demand and pricing scenario for the
cement sector. Most dealers indicated a price decline of
Rs5-30/bag in the month of November. Price correction
was sharp in North and Central regions largely due to weak
demand and festive season (Diwali and Chhatha). In South
region, price remained flat on MoM basis despite weak
demand scenario. Though, after a steep fall in price in
Andhra Pradesh in August and September, we were
expecting price hikes (prices increased in October ’12),
cyclone Nilam impacted the demand scenario and price
remained flat there. In the West region, price remained flat
at a few places like Mumbai, Surat and Rajkot on a MoM
basis; however, price declined by Rs5-20/bag in
Ahmadabad and Pune. In the East region, prices declined
by Rs10-20/bag in November ’12 and the dealers believed
the price will remain flat in the near-term. Our interaction
suggests that demand scenario is weak across India. Most
dealers indicated that price was expected to remain flat
going forward
Outlook & Valuation: We remain positive on the cement
industry as we believe that demand-supply scenario will
improve going forward. We believe that capacity
utilization rate of the industry will reach ~81% by FY15E
after bottoming out at 76.4% in FY13E. In the large cap, we
prefer UltraTech (post recent fall due to the change in
MSCI weight) and Grasim Industries due to its planned
capacity expansion. We continue to prefer Shree Cement
and JK Cements in mid-caps. We also like Orient Paper &
Industries and expect an upside in the stock in the nearterm
due to the de-merger of the cement business into a
separate entity.
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