>CEMENT SECTOR (ICICI DIRECT)

• All-India cement dispatches up 10.7% YoY in May 2009
• Northern region dispatches up 26.3%, South up by 4.1%

Robust growth
In May 2009, all-India cement dispatches reported a growth of 10.7% YoY on the back of strong growth in the northern and central regions. On an MoM basis, cement dispatches were down 1.2% mainly on account of a drop in capacity utilisation. On a YTD basis, (April-May’09) cement dispatches have grown by 11.9%. Among major players, Shree Cement, Jaiprakash Associates and Grasim reported impressive growth of 32.2%, 25.7% and 22.1% YoY, respectively, due to capacity additions and strong demand in the northern and central region. Ambuja (8.3%) and UltraTech’s (16.4%) growth have also been higher than the industry average on account of
lower base due to the ban on cement export last year.

Outlook
Infrastructure spending undertaken by the government prior to the election and demand from rural and semi urban housing mainly drove the strong YoY growth in cement dispatches. The lower base of last year also contributed to the YoY growth as export was banned in the first two months of FY08. The slowdown in the real estate sector has increased the uncertainty of cement demand in the near future. The uncertainty has further increased on account of growth driven by rural spending,
which is heavily dependent on monsoons. On the cost front, the recent surge in fuel prices will increase the cost pressure for cement companies from Q3FY10 (depending upon inventories and long-term contracts). With new capacities coming on stream, the industry would be unable to pass on the cost increase. Thus, we expect the margin to come under pressure.

Region wise performance
Among major regions, the northern region has reported the highest growth of 26.3% 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. The central region’s dispatches have reported growth of 11.0% YoY due to spending by the UP government on
low-cost housing. The western region has reported 8.3% growth on account of lower base due to ban on cement export last year (last year western region had reported growth of -6.2%). The eastern region has reported growth of 7.7% while southern region has reported moderate growth of 4.1% YoY on account of slowdown in construction activities due to assembly elections in Andhra Pradesh.

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