Sector Specific - Cement Industry
Cement Sector (updated - 05 June 2009)
Defying apprehensions that additional capacities and slowing demand will hurt sales, the six larger cement makers accounting for nearly half the current capacity of just over 200 million tonnes turned in agrowth in dispatches of astrong 16 per cent yearon-year in May. The growth in April had been 13 per cent year-on-year.
Of late though, industry watchers have been somewhat more optimistic and believe that demand could grow by as much as 7-9 per cent this year; dispatches for the industry in 2008-09 were up 8.3 per cent. Not surprisingly, the BSRB cement index has gained 67 per cent since the start of the year compared with a rise of 52 per cent for the benchmark indices some stocks have rallied by more than 100 per cent. However, industry watchers continue to believe that while the momentum will remain strong in the first half of the year, partly because of alow base effect, it could taper off after that.
The supply of cement, they say, could outstrip demand resulting in lower utilisations and pricing pressure. The feeling is that delays in commissioning new capacities have helped keep prices firm so far. However, the situation could change because by March 2010, an additional 35 million tonnes of supply is expected to come in. That’s one reason analysts feel that valuations for cement stocks aren’t so attractive any longer.
At the current price of Rs 777, Ultratech, for instance, trades at a price-earnings multiple of 10 times estimated 200910 earnings. At Rs 836, ACC trades at nearly 15 times 2009 estimated earnings while at Rs 100, Ambuja Cements trades at about 13.5 times estimated 2009 earnings.
source - businessstandard
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