>INDIAN CEMENT (HSBC)

Examining inter-regional dynamics

• Market share of cement players varies across India. Inter-regional dynamics play an important role
• Players in the more fragmented South are the major losers; our top sell ideas are India Cements and Madras Cements
• Our top pick is Shree Cement for its focus in the North and Central regions

We analyse market share trends and capacity addition. Our analysis shows that the divergence in market share trends across regions will persist. Cement companies in North and Central India should be able to retain market share despite potential overcapacity, which will provide some pricing discipline. But we expect the southern market to become fragmented.

We also examine the role of inter-regional dynamics. In the South, moderating demand growth and capacity additions hint at overcapacity. This may cause increased supply of cement to the West, which meets 20% of its requirements from the South. Further new capacity in the
North may also result in volumes being pushed westward.

Forecasts adjusted. We have revised FY10e EBITDA for our coverage universe in a range of -7% to 31%, primarily to reflect change in our volume and price assumptions.

Target prices upgraded; ratings unchanged. We move to average historical EV/EBITDA valuation from trough. We think demand positives are in the price and the sector will lose momentum from here. Maintain UW(V) on ACC, Ambuja, Madras and India Cements.

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