Sector Specific - Cement Industry              

Cement Sector (updated - 10 April 2009)
Over the last six months cement stocks have done rather well with the BS cement index up around 7.5 per cent compared with an upmove of around 4.6 per cent for the Sensex. Despite the Street’s anxiety that supplies would outstrip demand resulting in a fall in prices, nothing of the sort has happened as yet.

On the contrary, prices remain firm and have actually edged up in certain pockets by as much as Rs 20 per bag. Cement despatches for the industry were up nearly 10 per cent in March while for 2008-09, it was 8.3 per cent indicating that while the real estate sector may not be using much of the commodity, there is undoubtedly a lot of construction taking place across the country.

However, analysts continue to be circumspect pointing out that while around 7 million tonnes of capacity was added in the March 2009 quarter, over 20 million tonnes is expected in the first half of 2009-10. This supply, they suspect, could dampen prices as producers try to protect their market share. They conclude that by the end of 2009-10 prices could start trending down as more capacity is commissioned and as new and smaller players look to establish themselves.

The recent run up in prices has left stocks a little more expensive given that earnings could come off this year. At Rs 530, Ultratech trades at 7.5 times 2009-10 estimated earnings while at Rs 587, ACC trades at just over 10 times estimated 2009 earnings.
source - businessstandard

Cement Sector (updated - 27 Mar 2009)
The over Rs 85,000-crore domestic cement industry is set to see some relief in the March quarter. Industry analysts and market players feel that the current quarter will turn out to be the best in the current financial year in terms of revenues, margins and profitability.

Higher prices, significant despatches resulting from better-than-expected demand, declining input costs, favourable government decisions such as cutting excise duty and re-imposition of counter-vailing duty on imported cement are expected to help the industry come up with a better performance than the past three quarters.
Barring southern market, which saw lower despatches and weak prices, the industry anticipates better results in other parts of the country.
Vinod Juneja, managing director, Binani Cement (a Northbased manufacturer), said,

“The fourth quarter will be the best in FY09. Prices have improved from Rs 230-235 per bag last year (same quarter) to Rs 245250 in the North. No company is having any inventory as despatches are good.” The current quarter saw prices being hiked in two-three tranches by around Rs 8-12 per bag. The eastern and northern markets saw a firm pricing trend. In January and February, despatches grew by 8.26 per cent and 8.73 per cent at 16.13 million tonnes and 16.07 million tonnes, respectively.

Looking at the despatches trend, March is expected to clock despataches of over 17.5 million tonnes, which will be the highest ever for the industry.
On a year-on-year basis, the March quarter might not see a rise in profits, but in sequential terms, margins would be better and so the profitability, said an industry analyst.

He added that in the first three quarters, the industry saw margins getting shrunk by as much as 4-5 per cent compared to the corresponding quarters of the last financial year, whereas in the current quarter, margins will either be flat or shrink by not more than 1-2 per cent.

Hari Mohan Bangur, chairman and managing director of Shree Cement, and president of the Cement Manufacturers’ Association, said, “The industry saw a price rise in February as well as in March. The quarter will be a little better than the earlier quarters. Profitability is expected to maintain pace as far as Shree is concerned.” When asked about the depreciation impact on new capacity additions, Bangur said that it (depreciation) would not have much effect. He added that despatches growth rate in March was expected to remain above 8 per cent. Along with Shree Cement, UltraTech, Grasim and India Cements too are adding new capacities.

For most of the cement makers, profits in the first three quarters remained low compared with the last year. “The current quarter will not be any different but it will certainly improve on a sequential basis,” said an analyst.

Industry experts are expecting a rise of around 1012 per cent in revenues on yo-y basis as prices have gone up by 6-7 per cent in the March quarter. Last year during the same period, the average price of a 50-kg cement bag across the country was Rs 230, whereas now it is ruling around Rs 240-245.
source - businessstandard

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