Sector Specific - Cement Industry              

FIIs increase stake in top cement makers          (updated - 22 July 2009)
The robust performance of the 227-million tonne domestic cement industry, with a growth rate of over 11 per cent in the June quarter, has made Foreign Institutional Investors (FIIs) increase their exposure in the top sector firms.

The FIIs have increased stake during the quarter in ACC, Ambuja Cements, UltraTech, Grasim and Shree Cement.

Analysts said at the start of the quarter, there were apprehensions whether the strong growth performane of the March quarter would be sustained. “Factors like pre-election demand for infrastructure projects, pro-industry election results and delayed monsoon kept the growth momentum going,” they added.

The FIIs have been selective. All the companies in which they have shown interest have major exposure in the northern and central regions (except UltraTech) - the markets which are outperforming the national average growth in production and consumption. These regions have seen a rise of cement prices between Rs 5 and as much as Rs 40 for a 50 kg bag.

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Correspondingly, FIIs have cut their stakes in south-based cement majors, including India Cements and Madras Cement, where the dip is from 26.9 per cent to 23.86 per cent and from 2.29 per cent to 1.61 per cent, respectively. The southern market is witnessing relatively lesser consumption and building material is available at discounts.

“Good days for the cement players in the north and central parts are getting extended and that is why the FIIs are shifting to north-based players,” said an analyst with a domestic brokerage firm.

The outlook had hit bottom in the middle of the last financial year, when growth had dipped to as low as below 4 per cent on the back of decline in demand and fear of a glut.

The industry has added around 8 mt capacity till now, and is expected to add around 45 mt, in the current financial year.
source - BS

Cement Sector               (updated - 16 July 2009)
June has been yet another good month for the cement industry with despatches up a strong 13 per cent year-on-year. Not surprisingly, cement stocks have been resilient and the BSRB Cement Index has been an outperformer for some time now — against the Sensex’s gain of 40 per cent since the start of the year.
The index has risen nearly 60 per cent. With rising despatches in the June 2009 quarter, cement firms are expected to turn in higher margins that should boost earnings.

A part of the reason for the strong growth in June is a low base effect, but it’s also true that demand has been particularly good in northern and eastern regions. The story has been somewhat different in southern part of the country.
In May, for instance, consumption in key southern markets such as Andhra Pradesh and Karnataka barely rose.

Prices, say industry watchers, are coming off in this part of the country, even as they stay firm or even rise in several pockets in the north and east. Interestingly, cement prices weren’t hurt during the last couple of monsoons, though things could be different this time around.

Analysts believe that capacity addition has been of the order of an estimated 15 million tonnes in the June 2009 quarter and it’s possible that this could translate into lower prices elsewhere like in the west. Demand in the current year is estimated to grow by as much as 7-9 per cent; despatches for the industry in 2008-09 were up 8.3 per cent.

Industry watchers say commissioning delays have helped keep prices firm so far, though the situation could change. That’s because an estimated 25 million tonnes of supply is expected to come in by the end of the year. That is why analysts believe cement stocks should be bought at lower prices.

At the current price of Rs 740, UltraTech, for instance, trades at a priceearnings multiple of 9.5 times its estimated 2009-10 earnings. At Rs 807, ACC trades at nearly 14.5 times its estimated 2009 earnings, while at Rs 99, Ambuja Cements trades at about 13.5 times its estimated 2009 earnings.
source - BS