>CEMENT SECTOR (EMKAY)

Apr 09 dispatch grow @13.1%, prices increase 2.91%

Key Highlights
■ The cement industry delivered yet another month of stellar performance with dispatches growing by 13.1% yoy to 16.65mnt. Cement dispatches have registered an average growth of 11% since Nov 08 mainly on account of strong demand from rural housing and higher demand on account of pre election spend.

■ Cumulatively dispatch growth of cement majors (ACC, Ambuja, Grasim & Ultratech) at 13.87%yoy was inline with industry growth. AV Birla Group companies Grasim and Ultratech witnessed high dispatch growth with Grasim registering dispatch growth of 20.83% yoy while the same for Ultratech stood at 22.40%. Ambuja dispatch growth for April stood at 10.74% yoy while ACC was the laggard in the pack registering growth of 4.05% yoy.

■ On a regional basis Northern region witnessed the highest dispatch growth of 19.6% while South, West and Central registered 12.8%, 11.2% and 10.5% respectively. Dispatch growth was lower in East at 8.8%.

■ Cement prices continued their upward trend during the month of April 09 registering a yoy growth of 2.91% to Rs245. Even on a m-o-m basis, cement prices were up by Re1. We believe that the price rise is the result of strong dispatch growth observed over the past 6 months aided by robust demand outlook at least till the onset of monsoon.

■ On a regional basis, the Central region continued to register the highest growth in prices with April 09 growth pegged at 13.32% yoy while on a m-o-m basis, prices increased by Rs2 to Rs249/bag. South and North witnessed price increase of 3.85% and 2.49% to Rs262 and Rs246/bag respectively while prices fell in Eastern and Western regions by 2.25% and 2.07% respectively.

■ During the month of Apr 09, International coal prices witnessed a yoy decline of 42.55% to USD62.4. International coal prices are now down 65% from peak levels witnessed in July 08. However on a m-o-m basis, international coal prices had risen by 6.76%. As on 15th May 09, international coal prices were ruling at USD 58.8/ton.

■ With the onset of monsoon, we expect cement dispatches and prices to witness some softening. Based on our cement demand growth assumption of 6.9% for FY10E, we expect cement dispatches to fall by around 10% qoq this monsoon (July September 22009) and cement prices to fall by 4.3% -5.3% i.e. Rs10-13/bag to Rs232-234 (for details refer our Sector update ‘Monsoon trends’ dated 11th May 2009). We further assume the prices to continue to decline to Rs220 by Mar 10. However even in this case the cement price for the year would average Rs230/bag for FY2010. In our earnings estimates for cement companies we have factored in FY2010 average cement prices of Rs230/bag. Consequently we see little risk of downside to our earnings estimates for cement companies. We maintain positive view on the sector and our top picks are ACC, Ambuja, Ultratech, India Cement and Shree Cement.


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