>FUNDAMENTAL ANALYSIS ON CEMENT SECTOR

CEMENT INDUSTRY
■ India is the world’s second largest producer of cement after China with industry capacity of over 200 million tonnes (MT)

■ Total installed capacity was 204.29 MT as on August 31, 2008

■ Total despatches has been 100.17 MT during April–October 2008–09 100.96 MT during April–October 2008–09.

CEMENT INDUSTRY ANALYSIS
■ India’s cement consumption grew 9.6% yoy.
■ South market witnessed strong demand supporting firm pricing (up 4.7% yoy) in the region.
■ The key concern dip in construction and infrastructure activities in the country.
■ Contradictory pricing trend emerge; realizations remained robust in South
■ Capacity utilization improves MoM but remains lower yoy
■ Key performers were players who have recently added capacities
■ Coal prices cool from peak; freight index fell to the lowest levels since 2002.

To see the full report: CEMENT SECTOR

>Markets Headed for New High (Ride the wave with Caution)

Long term View - Nifty
After making a low of 2539 in March’09, Nifty started making a “Higher Tops and Higher Bottoms”. It started a fresh bull run but it faced lot of resistance in the range of 4600 – 4700. It started consolidation on the range of 4000 – 4600 and spent almost three months. In August’09, Nifty broke the above mentioned range of 4600 – 4700 and continued its northbound journey and made a high of 5152 on 15th Oct.09.

Technical Pattern
•On August’09 Nifty broke the neckline of “Inverse Head & Shoulder” pattern on the weekly chart.

•The value of neckline of “Inverse Head and Shoulder pattern is around 4650.

•On the weekly chart, Nifty is continuously making “Higher Tops and Higher Bottoms”

•Nifty is trading above the 61.80% retracement level of the entire fall from 6357 to 2252.

•For last 6 month Nifty is trading above the 200 DEMA, now the value of 200 DEMA is 4205.

•On the weekly chart RSI and Stochastic oscillators are in the overbought zone.

To see the full presentation: MARKET OUTLOOK

>EXIDE INDUSTRIES LIMITED (PPFAS)

Improving OE and Replacement Sales to sustain the growth momentum
Exide Industries Ltd. (EIL) has clocked a 92% Y-Y bottom line growth to Rs. 1,497Mn for Q2FY10 v/s Rs. 778.4Mn for Q2FY09, on the back of falling raw material costs. The company's top line growth was flat at 5.5% Y-Y to Rs. 9,503Mn (Rs. 9,004Mn), which came ahead of our expectations. Improving growth in OE and Replacement sales aided EIL's Auto Battery segment in clocking better growth during the quarter, this was also supported by the robust growth in its Industrial Battery segment.

The strong growth in profits was attributed to a 1,142bps fall in raw material to sales ratio owing to a huge decline in lead prices and an exchange gain of Rs. 20.4Mn for Q210 as against a loss of Rs. 29.7Mn for Q209. The fall in raw material costs pulled up the operating margins to 26% for Q210 v/s 16.5% for the corresponding previous quarter.

Other Highlights:
■ Operating Profit was up by 66.5% to Rs. 2,471Mn for Q210 v/s Rs. 1,484Mn for Q209

■ Margin Increase was also on account of lower imports and growing backward integration, i.e., captive sourcing of lead and lead alloys from Tandon Metals and Leadage Alloys India which EILhas acquired during the year

■ This acquisition will augment availability of indigenous raw materials and also facilitate the company in recycling scrap batteries

■ Further on, Exide plans to increase its Automotive and Industrial battery capacity by 50%, at an investment of Rs. 4,500-5,000Mn over the next 10-12months.

Outlook and Valuation:
The unprecedented growth reported in the past, huge upcoming capex signaling volume growth in the business and focus on new products catering to different industries will ensure improved performance by the company. The backward integration and expansion will also support the growth in business.

We upgrade our EPS estimates of Exide to Rs. 5.5/- (earlier Rs. 4.4/-) and to Rs. 6.2/- (earlier Rs. 5.3/-) for FY10E and FY11E respectively. At the CMPof Rs. 106.9/-, the stock is trading at 17.3x FY11E earnings (net of insurance value). We recommend HOLD on the scrip with a SOTP based revised target price of Rs. 126.8/- (19x FY11E earnings + Rs. 9.3/- value of Exide's investment in ING Vysya Life Insurance).

To see the full report: EXIDE INDUSTRIES LIMITED

>CHETTINAD CEMENT LIMITED (GEOJIT)

■ Chettinad Cement has reported excellent result for Q2 FY 2010. Net sales grew @ 28.7% to Rs. 361.16 crore (Rs. 280.7 crore). OPM% improved significantly to 40.8% (35.4%) owing to reduction in material cost to 11.6% (14.1%) of sales (in view of lower cost of coal and steel) and in other expenditures to 20.7% (24.6%) of sales. Consequently, PBT more than doubled to Rs. 65.73 crore (Rs. 30.99 crore) even after accounting for 77.9% spurt in interest of Rs. 22.66 crore in view of on-going capacity expansion. However, higher tax rate of 32.3% (-10.2%) restricted growth in PAT of Rs. 44.49 crore (Rs. 34.16 crore) to 30.2%.

■ For H1 FY 2010, net sales registered 29% growth in sales of Rs. 726.07 crore (Rs. 563.03 crore). OPM% enhanced to 39.8% (37.4%) resulting in 45.2% surge in PBT of Rs. 117.13 crore (Rs. 80.65 crore) after absorbing almost doubled finance cost of Rs. 44.08 crore (Rs. 22.88 crore). However, owing to nominal tax rate of 32% (3.7%), PAT of Rs. 79.63 crore (Rs. 77.7 crore) inched up by just 2.5%

■ CCL is Tamil Nadu based cement player with major markets in Tamil Nadu, Kerala and Karnataka.

■ With government focusing on development of infrastructure and impetus to housing sector, there is lot of opportunities for Cement Industry both in short term and long term.

■ To cater to growing demand, CCL is on expansion spree. Company has commissioned Line-I Greenfield Cement manufacturing unit with 2 million tpa capacity in Q4 FY 2009 and expects 2nd units with 2 million tpa capacity to commission during FY 2010. Moreover, it has also started process of land acquisition for its proposed 2 million tpa Greenfield Cement Plant at Karnataka. Meanwhile, Board of Directors have approved proposal for installing 2nd cement manufacturing facility with 2 million tpa capacity at Karikkali, thus taking cement capacity to ~ 10 million tpa. Company is also enhancing its power generation capacity from 15 mw to ~ 70 mw.

■ All these proposed plants should be commissioned and ready for production by the time Indian and world economy is fully on the path of resurgence and thus, company would be in a position to make the most of the economic recovery.

■ Company’s cash generation is significant. In H1 FY 2010, cash profit was s. 214.89 crore (Rs. 235.7 crore in FY 2009 full year).

■ At CMP of Rs. 416/-, the share (Rs. 10/- paid up) is trading at 6.9 times FY 2010 expected EPS of Rs. 60/-. In view of excellent future prospects, we recommend to “BUY” the share at CMP.