>CEMENT SECTOR: Feb volumes grow 4.9% YoY, utilisation at 80% (ICICI DIRECT)

In February 2010, all-India cement dispatches (including ACC and Ambuja) reported a growth of 4.9% YoY at 16.8 million tonnes (MT). The dispatches have grown by 10.4% YoY in YTDFY10. The northern and western regions have posted YoY growth of 12.3% and 11.6%, respectively, (adjusted for ACC and Ambuja). The central region reported 4.8% YoY growth while the southern and eastern region reported negative growth of 1.1% YoY and 0.5% YoY, respectively.

On an MoM basis, all-India dispatches growth has declined by 7.6%. The eastern and northern region reported 12.2% and 9.1% decline in dispatches, respectively. The western and southern region reported decline of 7.9% and 6.4%, respectively, while the central region reported a 6.9% decline in dispatches.

The all-India capacity utilisation declined to 80% in February ‘10 from 87% in January ‘10 and 90% in February ‘09. Northern and eastern regions saw highest fall in utilisation in February ‘10 to 89.5% and 78.7% from the January ‘10 utilisation rates of 98.5% and 90.5%, respectively. Central region’s utilisation rate has fallen to 107.6% in February ‘10 from 115.6% in January ‘10. Southern and western region’s utilisation rates stood at 66.5% and 87%, respectively.

JP Associates reported impressive dispatch growth of 57% on account of capacity expansion. Southern region players, Dalmia Cement, India Cement and Madras Cement have shown dispatch growth of 28.1%, 23.3% and 27.6%, respectively. Ambuja and UltraTech’s dispatches were up 2.5% and 8%, respectively, while ACC reported negative YoY growth of 2.3%.

Outlook
With ~42 MT of capacity addition across India during April-February FY10, all-India average cement prices have declined by ~3% during the same period. Moreover, capacity of ~42 MTPA is expected by the end of FY12 across all regions. We believe it will pull down capacity utilisation
rates and put further pressure on pricing. We expect the all-India utilisation rate to drop to ~83% in FY11E from the FY10E rate of 90%. We prefer northern and central region players on account of better pricing outlook compared to other regions. These regions have been enjoying firm pricing on the back of continuous strong consumption growth, driven by infrastructure spending by the government and demand from rural and semi-urban housing.

To read the full report: CEMENT SECTOR