Cement- 1QCY15: Earnings preview Weak earnings in a seasonally strong quarter :: Nomura research

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Cement demand trajectory to improve; dealers in the eastern region more optimistic :: Nomura research

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Cement - On a Structural Uptrend; Sector Update :: Edelweiss report

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Cement Sector | Q3FY15E Results Preview (Ultratech Cement, ACC, Ambuja Cement, Prism Cement & Mangalam Cement):: IndiaNivesh

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Cement Sector Preview – Q3FY15/Q4CY14 :: HDFC Securities

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Cement: 3QFY15 preview - the winter chill :: Kotak Securities

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3QFY15 preview –- the winter chill. A sequential decline of `7-10/bag in cement
prices will put the brakes on earnings momentum of cement companies that will see
little improvement in EBITDA/ton, compared to 2QFY15, as the advantage of a higher
volume base (post monsoon) would be lost to lower realizations. We expect sustained
volume trajectory (7% yoy) aided mainly by Ultratech, which continues to enjoy doubledigit
volume growth, helped by an expanded capacity base.

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Cement -Dual triggers - Rising demand & moderating costs:: Centrum

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Cement ƒ All India cement production growth to moderate during the quarterƒ :Q3FY15 Result Preview : ICICI Securities, report

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Cement, 3QFY15E Results Preview :: HDFC Securities

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Mid-Cap Cement - Sector Initiation - Troubles receding, valuations can soar :: Centrum

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Troubles receding, valuations can soar



We initiate coverage on mid-cap cement companies (JK Lakshmi, Prism
Cement, Mangalam Cement and Orient Cement) with a positive view as we
believe that these companies will benefit from improving demand-supply
dynamics and improved utilization rate of the industry. We believe
mid-cap companies will surpass the earnings growth CAGR of large cap
companies in the next few years led by higher volumes on the back of
capacity additions and higher operating and financial leverage. The
valuation gap between mid and large cap companies tend to narrow in a
cyclical upturn which should provide more room for upside. In this
space, our top pick is JK Lakshmi Cement (sharp increase in
capacities) and Prism Cement (turnaround story).

$ Mid-cap companies ready to take the leap, attractively placed to
large players: Mid-cap cement companies will post higher volume growth
in improving demand scenario due to higher capacity additions compared
to large players. Most of these companies are operating at higher
utilization rates compared to large players due to their presence in
favourable regions. Mid-cap companies tend to re-rate in a cycle
upturn due to high operating and financial leverage and valuation gap
with large cap narrows. On EBITDA growth vs. EV/EBITDA scatter, we
find that mid-cap companies are attractively placed compared to large
players.

$ Pace of capacity addition slowing down; demand may outpace supply:
We expect the pace of capacity addition to slow down post FY15E which
will lead to higher utilization rate.  We expect installed capacity to
grow at a CAGR of 5.1% between FY14-FY17E and with expected demand
growth at 8.5% CAGR, effective utilization rate of the industry should
improve going forward. Post a decline in industry utilization rate to
72.8% in FY14, we expect it to improve gradually to 79.6% in FY17E. We
believe new players will restrain themselves from entering the cement
business as the RoCE seems to be very low for a new greenfield plant
at current prices and at the same time, regulatory hurdles will delay
commissioning of fresh capacities.

$ Cement prices to remain strong, coal cost pressures seem to be
moderating: Cement prices are dependent on improvement in cement
demand historically and with our expectation of improvement in cement
consumption, prices should remain firm. The manufacturers were not
able to pass on the increasing costs to consumers due to low demand
and surplus capacities for last few years. Cement prices have remained
at higher levels in the past few months, which will benefit the
companies going forward. There has been moderation in imported coal
prices in the past one year which will also help cement companies.

$ Outlook and key risks:  Our top pick in mid cap space is JK Lakshmi
Cement followed by Prism Cement. We believe JK Lakshmi will benefit
from capacity addition and presence in favourable markets. Prism
Cement is a turnaround story where revival is visible in the Cement
segment and TBK segment is also on the verge of revival. Key risk to
our thesis is continued slowdown in infrastructure activities which
will impact cement prices.



Thanks & Regards


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CEMENT SECTOR UPDATE  prefer Grasim industries and Shree cements ltd.:: Kotak Sec, PDF link

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CEMENT SECTOR UPDATE
 Channel checks indicate that cement prices have witnessed a correction
across regions due to monsoons but prices are expected to recover post
monsoons.
 Demand has improved ahead of our estimates due to delayed onset of
monsoons and revival in construction activity. Dealers indicate that improved
momentum is expected to continue in coming quarters also.
 In near to medium term, sector may continue to get impacted by higher
costs. However, improvement in cement prices is likely to improve profitability
in coming quarters.
 We continue to remain selectively positive on cement sector and prefer
Grasim industries and Shree cements ltd.



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Cement Sector Update :: ICICI Securities

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Monsoon effect seen in prices; decline MoM
Average cement prices decline in August
All-India cement prices declined on a month on month (MoM) basis.
Average prices were reported at | 312/bag during August from | 323/bag in
July. After defying monsoon pressure during the previous month, prices
finally declined during August due to lower demand on account of the
monsoon season.
Monsoon impact leads to decline in prices
Overall cement prices in India declined MoM. The lowest decline was seen
in central and southern regions. The decline in prices is on expected lines
due to monsoons. Average prices in the central region declined by | 4 /bag
on an MoM basis to | 301/bag during August with a major decline in
Ghaziabad and Indore where prices declined by | 6/bag and | 5/bag,
respectively. In the southern region, the average decline in prices was by
| 5/bag with a decline of | 10-12/bag in Bangalore, Chennai and Kochi while
Hyderabad saw a defiant trend with a price increase of | 11/bag. In the
western region, prices in Gujarat declined by almost ~| 30/bag while
Maharashtra also faced a price correction of | 6/bag to | 13/bag. With this,
the average decline in the western region remained at | 16/bag with a price
of | 325/bag. Northern and eastern regions registered a price decline of
| 15/bag each MoM. Average price in the northern region stayed at
| 284/bag post correction with highest decline in Jalandhar and Gurgaon. In
the eastern region, average prices remained at | 317/bag with price decline
in the range of | 9/bag to | 17/bag in various regions. Overall, August 2014
witnessed demand pressure after registering an improvement in demand
during Q1FY15 (with average YoY production growth of 9.67%) due to the
monsoon season. However, we expect demand to improve along with an
increase in prices once monsoon season ends.
Large caps trading at premium to current replacement costs
Large cap stocks like Ambuja, UltraTech and Shree Cement have now
reached their fair valuations after a sharp rally in the previous three months
due to favourable election outcome. However, the midcap space has still
potential for further upside from current levels. In the midcap space, we like
the business fundamentals of JK Cement (doubling white cement capacity),
JK Lakshmi Cement (strong presence in north) and Heidelberg (operating
leverage and cost efficiency measures). In small caps, we still like
Mangalam Cement after a sharp rally due to its attractive valuations.



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Indian Cement Sector Price hikes not as large as believed by markets; JPMorgan

Indian Cement Sector Price hikes not as large as believed by markets; Post results, stock prices should reverse given stretched valuations

· Cement stocks have been very strong on a combination of: a) production disruptions in Rajasthan which has buoyed cement prices; b) merger discussions around Holcim-Lafarge, which would lead to further consolidation in India; and c) expectations of a sharp pick up in cement demand post elections.

· Valuations for the large cap cement equities like Ambuja (15.7x CY14E, 11.9x CY15E EV/EBITDA) and Ultratech (12.8x FY15E, 10.6x FY16E EV/EBITDA) are at life-time highs and on EBITDA estimates 2 year forward, which are ~45-50% higher than FY14/CY13 earnings. Hence the 2-year forward earnings have already built in: a) demand recovery, and b) cement margin increase and on that elevated earnings estimates, the stocks are trading at peak multiples.

· On the ground pricing momentum not as strong as inferred by markets: Our channel checks with cement dealers indicate that pricing has been steady over the last 2-3 weeks in most parts of Northern and Western India, and discounts were given out in end March given year end. Cement prices have seen sharp increase in Feb and early March in parts of Northern and Western India given the shutdown of 6MT Binani Cement plant and this has also allowed large volume increases for incumbents, but post March, prices have been steady. Demand has been lackluster given elections.

· Medium term fundamentals could improve, but near term could have some headwinds: The March quarter earnings are likely to be among the strongest in recent times, particularly for Western and Northern India companies, but from here we see potential downside given expectation of operations resuming at the Binani plant over the next few months and hence the price increases should reverse. Valuations are stretched for the large caps even on 2 year forward estimates and even after building in large earnings growth. At current valuations we see little value in the large cap cement names (ACC, Ambuja, Ultratech) and expect some of the recent stock price momentum to reverse from here.

Figure 1: Indian Cement Stocks: YTD Performance

Source: Bloomberg.

Figure 2: Indian Cement: Historical EV/EBITDA chart

Source: Company reports, Bloomberg and J.P. Morgan estimates.

Figure 3: Indian Cement: Historical EV/Tonne chart

Source: Company reports, Bloomberg and J.P. Morgan estimates.

Figure 4: ACEM EV/EBITDA Chart

Source: Company reports, Bloomberg and J.P. Morgan estimates.

Figure 5: UTCEM EV/EBITDA Chart

Source: Company reports, Bloomberg and J.P. Morgan estimates.

Metals & Mining

Cement - Q3FY14 Results Preview - Weakness persists, near term triggers lacking :: Centrum

Weakness persists, near term triggers lacking



Cement companies under our coverage are expected to post weak numbers
in Q3FY14E led by decline in volume and weak realization. Led by
volume and realization decline, average operating margin of our
coverage price is expected to contract on a YoY basis, though on a
sequential basis, there could be some improvement led by lower repair
& maintenance costs. Cement realization is facing continuous pressure
due to lower demand which will keep OPMs of cement companies under
pressure in the near term. Our interactions with cement dealers
suggest that cement prices continue to remain volatile and there have
been price declines recently. We believe the pressure on realization
with no-near term triggers for volume recovery will suppress stock
prices for the next 2-3 quarters and hence, maintain our cautious
stance on the sector. We have also downgraded our rating on Kajaria
Ceramics to Hold (earlier: Buy) considering the steep 24% increase in
the stock price in the past month.

$ Sluggish volume growth: Aggregate sales volume of our coverage
universe is expected to decline 3% YoY due to subdued demand. In our
coverage universe, volume is set to decline 4-8% YoY for large cement
players. Shree Cement is expected to post a volume growth of 11.5% YoY
in the quarter.

$ Realization to remain under pressure: Average realization for our
coverage universe is expected to decline 4.8% YoY in the quarter
primarily due to sharp fall in realization of Ambuja Cements, Shree
Cement and JK Cement. Realization of Ambuja and Shree cement is
expected to remain under pressure due to higher non-trade sales.
UltraTech Cement is expected to post realization growth of 2% YoY
during the quarter.

$ Pressure on cement price and sales volume leads to downward revision
in earnings estimates: Lower-than-expected improvement in cement price
(average 1.6% QoQ vs. est. 4% earlier) and delayed recovery in cement
consumption growth forces us to cut EBITDA estimates sharply for our
coverage universe. We expect Bloomberg consensus estimate to be
revised downwards sharply post the result season. We have revised
EBITDA estimates for coverage universe downwards by 9-18% for FY14E
and 6-14% for FY15E.

$ Recommendation and key risks: We maintain a cautious stance on the
cement sector for the next 2-3 quarters as cement price is under
continued pressure due to lower demand. Our interaction with industry
participants suggest that cement demand will only improve post general
elections. We are also concerned over the sharp deterioration in
earnings quality of cement companies under our coverage. Key upside
risks to our thesis could be a) sharp recovery in cement consumption,
b) higher-than-estimated cement price and c) lower energy costs.



Thanks & Regards

--
--

Cement- Demand continues to be sluggish :Centrum

Demand continues to be sluggish
We interacted with cement dealers across India (25 cities) to get a sense of the demand and pricing scenario for the sector. Dealers across India believe that demand continues to be sluggish due to low construction activities and poor demand from the infrastructure segment. Also, as per dealers, demand from the trade segment has come down recently. In terms of cement pricing, there has been marginal increase in the last one month across India. In the South region, Hyderabad witnessed a steep hike of Rs90-100/bag in the last one month and current price stands at Rs300/bag. Pan-India average price increased 4.4% MoM to Rs303/bag. Barring Hyderabad, average increase in price was only 2.6% MoM. Going forward, cement dealers are expecting price cuts in coming days primarily due to weak demand and the monsoon season ahead. Though in the near-term we expect cement stocks to remain under pressure due to sluggish demand and subdued cement price in the Monsoon season, in the long run we remain positive on the cement industry. We expect despatches to improve in 2HFY14E (post monsoon) as construction activities pick up which will also help manufacturers to take price hikes.

Demand continues to remain weak: Cement dealers at most cities pointed out to a weak demand scenario and based on our discussion, we believe that cement demand was poor in May. Also, initially, there is slow off-take in June ’13. According to dealers, apart from low infrastructure spending by the government, weakness in demand was also due to scarcity of water. Also, dealers believe that the sale from the trade segment has come down in last few months.

Price rebounds in May after steep decline in April ‘13: After average price (pan- India) correction of 4.4% MoM during April ‘13, cement price increased by 4.4% MoM to Rs303/bag. However, barring Hyderabad, where the price hike was very steep, average MoM increase in cement price was 2.6% in the last one month.

India Cement EV/T metrics might be misleading when utilizations are expected to remain low; Earnings metrics more relevant:: JPMorgan

One common ‘bull’ argument for cement is that stocks are 'cheap' as they are
trading close/below current replacement costs of ~$120-140/T. Historically large
cap stocks have traded at a significant premium to replacement costs, however,
those years were marked by peak utilization rates, M&A and increasing
profitability. With utilizations expected to remain below ~85% for the next few
years, M&A largely absent, and earnings range bound, we believe earnings based
metrics (EV/EBITDA) are more relevant and not replacement costs (EV/T).
Cement stocks DO NOT look cheap on earnings metrics as they do on EV/T.

Dealer interaction – Key takeaways Cement Sector :: Centrum

Dealer interaction – Key takeaways

Cement Sector

Price hike continues despite sluggish demand

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, 

-- 

Cement Sector Update - Dealer Interaction - Centrum

Dealer interaction – Key takeaways

Cement 

Price hike likely but current environment remains weak

We interacted with cement dealers across India (27 cities) to get a sense on the demand and pricing scenario for the sector. Though demand continues to remain weak across India, cement manufacturers are expected to hike prices by Rs10-20/bag in most places in the current month.

Cement Dealer interaction – Key takeaways:: Centrum

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.

Cement Channel Check - Monsoon gloom: Not as bad as last year; monthly update ::Edelweiss PDF link

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.