>CEMENT SECTOR (ICICI DIRECT)

■ Cement dispatches up 13.1% YoY in April 2009

■ Capacity utilisation at 92% in April 2009; southern region lags

Robust growth
In April 2009, all-India cement dispatches reported a growth of 13.1% YoY on the back of spending in construction activities by the government before election. On an MoM basis, cement dispatches were down 8.1% mainly on account of a drop in capacity utilisation. Capacity utilisation dropped to 92% in April 2009 against 103% in March 2009.

Among major players, Shree Cement, Jaiprakash Associates, Dalmia Cement and Grasim have reported impressive growth of 28.4%, 28%, 23.7% and 21.3% YoY, respectively. Madras Cement and UltraTech Cement have also reported good growth that is higher than the industry average. The strong growth in the dispatches of these players was primarily on account of capacity additions. Birla Corp has reported negative growth of 7.9% in dispatches.

Outlook
As demand normally slows down post elections and the monsoon season is around the corner, we expect demand to get stalled in the coming months. Apart from this, capacity additions would put further pressure on realisations. However, with softening of coal/petcoke prices, cost pressure for the cement industry has been easing out considerably. Also, most of the cement players have consumed their high cost coal/petcoke inventories. Thus, most players are expected to report sequential improvement in profits. However, the adverse demand supply situation will force cement companies to pass on the savings by reducing prices in the medium-term.

Region wise performance
Among major regions, the northern region has reported the highest growth of 19.6% YoY led by incremental demand from major projects, namely, Commonwealth Games, sewerage line project in Punjab, national irrigation project in Haryana, Delhi Metro, flyover and Delhi airport. Also, re-imposition of CVD and special CVD on imported cement has contributed to growth from northern players. The southern region has reported growth of 12.8% YoY driven by higher demand from irrigation projects. The western region has reported 11.2% growth in dispatches. The central region’s dispatches have reported growth of 10.5% YoY due to spending by the UP government on low-cost housing. The eastern region has reported growth of 8.8%.

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