>Indian Cement Sector (UBS)

Continued volume momentum in April ’09

■ Strong April ’09 despatch growth for cement majors except ACC
Grasim’s cement despatch growth in April’09 was 17.4% YoY (3.18mt, -5.6% MoM). We had highlighted in our note dated 4th May 2009 “Turn positive on the sector” that Grasim would benefit significantly from front-loaded capacity additions. Ambuja’s despatch growth in April was 10.8% YoY (1.64mt, -4.7% MoM) while ACC’s despatches were up 4% YoY (1.80mt, -6.2% MoM). Despatch data of April’09 for the industry is yet to be released.

■ Assume FY10 demand growth at 5%; prices unlikely to fall YoY
We estimate cement demand to grow at 5% in FY10 in line with UBS’s India GDP forecast of 5.1%. Historically, cement demand has grown at an average 1.4x the real GDP growth rate. We believe cement growth in excess of 5% will further reduce excess capacity in FY10, alleviating any concerns on price declines. Any positive surprise from despatch growth will only strengthen our view on the sector. We do not expect average cement prices in FY10 to fall on YoY basis.

■ Preferred picks in the sector: Grasim and Ambuja
Our preferred picks are: 1) Grasim due to front-loaded capacity addition and a significant increase in captive power capacity; and 2) Ambuja due to a significant increase in captive power capacity, its net cash position, and significant scheduled cement capacity expansion in 2009-10. We also have Buy ratings on ACC and India Cements.

To see full report: INDIA CEMENT SECTOR