>STRONG VOLUME GROWTH OF CEMENT SECTOR CONTINUES IN AUGUST (UBS)

■ Cement majors continue to record strong growth in August 2009
Grasim Industries continues to benefit from frontloaded capacity expansion with 32% YoY (+7% MoM) volume growth in August 2009, while Ambuja Cements also recorded strong YoY growth of 15% (-1% MoM). ACC’s despatches grew 7% YoY (-7% MoM). Despatch data for the industry is yet to be released.

■ Industry despatch growth continues above 10% YTD (April-July)
The industry continued its growth momentum with 10% despatch growth for July 2009. YTD (April-July 2009) the industry has recorded growth of 12%. Prices remained firm in July in most regions except the western and southern regions, where a marginal fall in prices was recorded.

■ Prices likely to remain firm in FY10 though seasonal correction possible
We do not expect average cement prices in FY10 to fall on a YoY basis (though there could be seasonal pricing declines such as in the monsoon quarter) since we do not expect significant overcapacity as highlighted in our note Turn positive on the sector, dated 4 May 2009 (~15% in FY10-12E). A continued strong demand environment (we have conservatively estimated 5% growth in FY10) would hence only strengthen our view on the sector. We remain positive on the sector.

■ Statement of Risk
We believe the key risk to our outlook on the sector could come from an unexpected fall in cement prices, increase in input costs such as coal/freight, and any government intervention to lower cement prices.

To see full report: CEMENT SECTOR