Cement - Retail prices under pressure - Centrum

We interacted with cement dealers across India (27 cities) to get a sense on the demand and pricing scenario for the cement sector. Most dealers indicated a price decline of Rs5-30/bag in the month of November. Price correction was sharp in North and Central regions largely due to weak demand and festive season (Diwali and Chhatha). In South region, price remained flat on MoM basis despite weak demand scenario. Though, after a steep fall in price in Andhra Pradesh in August and September, we were expecting price hikes (prices increased in October '12), cyclone Nilam impacted the demand scenario and price remained flat there. In the West region, price remained flat at a few places like Mumbai, Surat and Rajkot on a MoM basis; however, price declined by Rs5-20/bag in Ahmadabad and Pune. In the East region, prices declined by Rs10-20/bag in November '12 and the dealers believed the price will remain flat in the near-term. Our interaction suggests that demand scenario is weak across India. Most dealers indicated that price was expected to remain flat going forward.

Outlook & Valuation: We remain positive on the cement industry as we believe that demand-supply scenario will improve going forward. We believe that capacity utilization rate of the industry will reach ~81% by FY15E after bottoming out at 76.4% in FY13E. In the large cap, we prefer UltraTech (post recent fall due to the change in MSCI weight) and Grasim Industries due to its planned capacity expansion. We continue to prefer Shree Cement and JK Cements in mid-caps. We also like Orient Paper & Industries and expect an upside in the stock in the nearterm due to the de-merger of the cement business into a separate entity.

Source : Equity Bulls

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