Cement Dispatches rebound in November
SECTOR UPDATE by Sharekhan
Cement dispatches for November 2008 grew by 12% year on year (yoy) to 14.43 million metric tonne (MMT). Cumulative dispatches from April to November 2008 rose by 7.4% to 114.70MMT. The growth for the month under review is mainly on the back of low base effect and end of festive season in October 2008.
The utilisation ratio for the month under review stood at 83.3% as against 90.5% a year ago. The significant drop in utilisation yoy is backed by a 19.3% year-on-year (y-o-y) growth in capacity addition. However, the utilisation ratio also declined on a month-on-month (mom) basis due to capacity addition of 0.11MMT during the month.
Among regions, eastern India emerged as the leading cement-consuming region with a growth rate of 21.7%. Northern and central regions registered an impressive growth of 20.2% and 15.9% respectively. After a long period, the growth rate in southern region has slowed down to 7.9%. However, the western region continued to register a negative growth during the month under review.
Among the companies under our coverage, Shree Cement emerged as a pioneer with a robust volume growth of 33.7% yoy to 0.61MMT during the month, mainly on the back of capacity addition. Ultratech Cement and Orient Paper and Industries Ltd (OPIL) have also registered impressive growth of 16.2% and 14.8% respectively. Dispatches of top three players—ACC, Grasim Industries and Ambuja Cement—have also improved significantly to 8.2%, 5.3% and 8.7% yoy respectively.
Cement prices in November 2008 declined across all major cities (Mumbai, Delhi, Kolkata, Chennai and Hyderabad) compared to those in October 2008. The fall in prices was mainly due to cut in excise duty and slowdown in demand from non-trade segment.
Though macro headwinds remain, in terms of slowdown in key user industries (such as real estate and construction) and overall economy, the recent moderation at cost front and positive impact due to surge in the volumes and savings due to recent cut in central value added tax (cenvat) are likely to improve the estimated profitability of cement companies by 8-15% in FY2010. Additionally, as mentioned in our previous note, the valuations are already attractive with most companies trading at 30-60% discount to their replacement cost. The demand growth is likely to be in the range of around 6.9%, against the earlier expectation of 8-9% growth in FY2009. However, some of the companies like Shree Cement and Ultratech Cement will benefit from relatively early commissioning of their capacities and captive power plants.
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