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Concall with Sanjay Ladiwala
We hosted Mr. Sanjay Ladiwala, President, Cement Stockists & Dealers
Association of Bombay for an investor interaction. Mr Ladiwala who has been
involved in the cement business for the past 38 years sounded a word of
caution on cement demand-supply-pricing for the next few quarters. He
attributed the strong despatches by cement majors in Jul-11 to a weak start
to the monsoon which has benefitted YoY comparisons. He highlighted that a
good monsoon would be key for a sustained demand pick up. Regionally,
south appears to be worst placed on demand-supply; concerns persist in north
as well while east seems to be best positioned given its low base.
Demand growth remains sluggish; monsoon is the key
q Cement demand growth continues to stay weak due to weak trends in real
estate as well as sluggish infra activity.
q While there has been a pick up in volumes for ACC, Ambuja, UltraTech, JPA
(~42% of All India capacity) for Jul-11 (+15% YoY), he attributes this to
weak start to the monsoon in July (14% below normal cf. 2% above in Jul-
10).
q While it may help construction activity and cement demand growth in the short
term, it could be negative from a medium term perspective given that rural
housing is an important demand driver (~72% of housing demand in India).
East is best placed (followed by west); issues to continue in south/ north
q South has been the most impacted region due the weakest demand-supply
equation (operating rate at sub-65%). Outlook continues to remain weak due
to limited infra activity which historically has been a key demand driver.
q However, most of the recent capacity additions have been in north which has
created surplus scenario in the region. Demand growth has softened as well.
q North and south are likely to remain weak over the next few quarters,
therefore, as the demand-supply mismatch is likely to continue.
q While the east is a relatively smaller region (~10% of All India demand), it is
likely to see the best demand-supply equation; demand too has been strong.
q While west saw exaggerated price drops in the last couple of months, this was
due to desperation in the industry to push volumes; this has now stabilised
with prices picking up in recent weeks from the low levels.
Pricing pressure may continue in the medium term
q Cement prices usually drop seasonally as the monsoon sets in.
q This year, however, cement prices corrected across regions even earlier than
the monsoon reflecting overall demand-supply mismatches.
q In the next few quarters, capacity surpluses would continue to impact prices.
q Further with many players also expanding outside their core regions (for
example JAP in west), pricing pressures are exacerbated as these new
entrants strive to increase market shares by offering higher discounts etc.
Logistical issues could further impact in coming years
q Freight and logistics capacity (road-rail-sea) has not kept pace with supply
additions in cement. For example, availability of truckers (as well as drivers)
has become a key bottleneck impacting the movement in the last 1-2 years.
q Logistics would remain important and impact demand-supply dynamics.
q For example, a transport bottleneck in south (capacity surplus region) could
impact consumption in west (net importer) due to non-availability of rakes.
Retain U-WT despite recent underperformance
q We too remain concerned on the sector outlook and expect pressures to
continue in the medium term.
q We retain our negative ratings on ACC, Ambuja Cements, UltraTech Cement,
Shree Cement and India Cements.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Concall with Sanjay Ladiwala
We hosted Mr. Sanjay Ladiwala, President, Cement Stockists & Dealers
Association of Bombay for an investor interaction. Mr Ladiwala who has been
involved in the cement business for the past 38 years sounded a word of
caution on cement demand-supply-pricing for the next few quarters. He
attributed the strong despatches by cement majors in Jul-11 to a weak start
to the monsoon which has benefitted YoY comparisons. He highlighted that a
good monsoon would be key for a sustained demand pick up. Regionally,
south appears to be worst placed on demand-supply; concerns persist in north
as well while east seems to be best positioned given its low base.
Demand growth remains sluggish; monsoon is the key
q Cement demand growth continues to stay weak due to weak trends in real
estate as well as sluggish infra activity.
q While there has been a pick up in volumes for ACC, Ambuja, UltraTech, JPA
(~42% of All India capacity) for Jul-11 (+15% YoY), he attributes this to
weak start to the monsoon in July (14% below normal cf. 2% above in Jul-
10).
q While it may help construction activity and cement demand growth in the short
term, it could be negative from a medium term perspective given that rural
housing is an important demand driver (~72% of housing demand in India).
East is best placed (followed by west); issues to continue in south/ north
q South has been the most impacted region due the weakest demand-supply
equation (operating rate at sub-65%). Outlook continues to remain weak due
to limited infra activity which historically has been a key demand driver.
q However, most of the recent capacity additions have been in north which has
created surplus scenario in the region. Demand growth has softened as well.
q North and south are likely to remain weak over the next few quarters,
therefore, as the demand-supply mismatch is likely to continue.
q While the east is a relatively smaller region (~10% of All India demand), it is
likely to see the best demand-supply equation; demand too has been strong.
q While west saw exaggerated price drops in the last couple of months, this was
due to desperation in the industry to push volumes; this has now stabilised
with prices picking up in recent weeks from the low levels.
Pricing pressure may continue in the medium term
q Cement prices usually drop seasonally as the monsoon sets in.
q This year, however, cement prices corrected across regions even earlier than
the monsoon reflecting overall demand-supply mismatches.
q In the next few quarters, capacity surpluses would continue to impact prices.
q Further with many players also expanding outside their core regions (for
example JAP in west), pricing pressures are exacerbated as these new
entrants strive to increase market shares by offering higher discounts etc.
Logistical issues could further impact in coming years
q Freight and logistics capacity (road-rail-sea) has not kept pace with supply
additions in cement. For example, availability of truckers (as well as drivers)
has become a key bottleneck impacting the movement in the last 1-2 years.
q Logistics would remain important and impact demand-supply dynamics.
q For example, a transport bottleneck in south (capacity surplus region) could
impact consumption in west (net importer) due to non-availability of rakes.
Retain U-WT despite recent underperformance
q We too remain concerned on the sector outlook and expect pressures to
continue in the medium term.
q We retain our negative ratings on ACC, Ambuja Cements, UltraTech Cement,
Shree Cement and India Cements.
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