Dealer interaction – Key takeaways
Cement Sector
We interacted with cement dealers across India to get a sense on the demand and pricing scenario for the sector. Though demand continues to remain weak across India, cement price has recovered sharply at most places except South region (mixed trend with decline in Hyderabad and increase in Chennai).
m Sharp increase in cement price in Central and East regions in the past month: Cement prices increased sharply at most places in the Central and East regions over the past month. Price in the central region increased by Rs25-30/bag in the past month despite sluggish demand. In the East region, cement price is prevailing in the region of Rs340-395/bag after an increase of Rs30-45/bag last month.
m North and West regions remain a mixed bag: In the North region, there was a price increase of Rs5-25/bag in last one monthexcept in a few cities like Jaipur (price declined by Rs5/bag) and Jodhpur (price remained flat). In the West region, Maharashtra (Mumbai and Pune) prices went up by Rs10-25/bag in the past month, whereas, in Gujarat (Ahmadabad and Rajkot) prices declined by Rs5-10/bag. Price remained flat in Surat. Weak demand scenario prevails across Maharashtra and Gujarat. In Gujarat, companies’ attempts to increase prices failed due to sluggish demand. In Gujarat, dealers believe companies may try to increase price again, but weak demand may not help to sustain them as demand is expected to moderate due to Holi festival in the third week of March.
m Price declines in Hyderabad again, while Chennai sees a hike: Price range is Rs300-330/bag with the exception of Hyderabad, where prices are in the range of Rs215-230/bag. In Chennai, price was hiked by Rs25/bag, whereas, in Hyderabad, there was a price cut of Rs20/bag in the past month. Prices remained flat in Bangalore and Kerala in the past month. As per dealers, cement price is expected to remain flat in coming days. Though in Hyderabad, companies may announce a price hike of Rs10-15/bag next week, dealers remain skeptical about its absorption owing to low demand.
m Cement production declines 6.6% YoY in January ’13: After an increase of 3.9% YoY in production in December ’12, cement production declined significantly by 6.6% in January ’13 as per the data released of core sector industries. Last year, in January, cement production increased 10.9% YoY. The cumulative growth of cement production was 4.6% during April-January 2012-13 compared to 6.3% growth during the same period of 2011-12.
m Outlook & Valuation: Though in the near-term we expect cement stocks to remain under pressure due to sluggish demand and pressure on cement price, in the long run we remain positive on the cement industry as we believe that demand-supply scenario will improve going forward. We believe that effective utilization rate of the industry will gradually improve to 80.4% by FY15E against 76.9% in FY12, which will result in improved pricing power for manufacturers. Our preferred pick among large players are UltraTech and Shree Cement, followed by Ambuja and Grasim Industries. In mid-caps our preferred pick continues to be JK Cement followed by Mangalam Cement. We also like Orient Paper & Industries and expect an upside in the stock in the near-term due to the de-merger of the cement business into a separate entity.
Thanks & Regards,
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