Cement - Recovery continues - ElaraCapital

Cement dispatches report modest growth in May

In the month of May 2013, aggregate dispatches of 6 cement companies grew by 2.7% YoY. Even on a MoM basis dispatches increased by 4.4%. Cement demand improved YoY in eastern region while it has remained subdued in other regions.

Dalmia outperforms peers

In May 2013, Dalmia reported impressive growth of 24.1% due to acquisitions of Calcom and Adhunik cement. India cements also reported impressive growth of 21.8% due to ramping up of production of Rajasthan plant. However, JK Cement reported decline of 18.3%, YoY as the company started withdrawing from the markets that had turned non remunerative. While, Mangalam Cement has reported decline of 14.1% YoY as the company had taken shutdown of one of its kiln due to expansion.

Prices hike continue selectively

After a price hike of INR 30 a bag in Hyderabad during mid of May, prices have further increased by INR 60 a bag in last few weeks. Sharp increase in prices in Andhra Pradesh has favourably impacted the prices in the neighboring markets. Consequently, prices have increased by INR 20 a bag in Chennai & Bhubaneswar and INR 7 a bag in Bangalore. Prices, in Mumbai have remained flat while it have soften INR 13 a bag in Ahmedabad and INR 10 a bag in Jaipur.

Recommendation and outlook

Earnings of cement companies are likely to be weak in Q1FY14 due to lower price, increase in cost and subdued demand. However, we believe that earnings of cement companies will recover sharply in H2 on account of improvement in prices and demand. Thus, we believe that near-term weakness in cement stocks can be used as opportunity by long term investors to increase their holdings.

Source : Equity Bulls

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