INDIA: Cement demand likely to grow by 4.5% in FY12: RK Global

Cement giants ACC, Ambuja and UltraTech together, reported a 14% Y-o-Y growth in the dispatches for the month of Nov-2011 to 6.7 mn tons. However, the dispatches reported a 6.1% sequential decline in volumes. The decline in the dispatches reflects the impact of slow-down seen across the business activity,`` said RK Global Research.

The cement industry delivered yet another month of resilient performance with dispatches growing by 5.2% y-o-y to 10.6mnt. Cement dispatches have registered an average growth of 11% since Nov`10 mainly on account of languish demand from rural housing and Govt. infrastructure spending. Ambuja witnessed high dispatch growth of 25.4% Y-o-Y. UltraTech dispatch growth for November stood at 16.3% Y-o-Y, while ACC was the laggard in the pack registering growth of 5.2% Y-o-Y.

Price impact

All-India cement prices continue to remain inversely related to dispatches as players adhere to strict supply discipline. Cement prices have increased by an average of Rs 18 per bag. On regional basis northern region have witnessed an increased by Rs 8 per bag in Nov`11. During the month, the average price increased by Rs 8 per bag to Rs 263 per bag in Delhi. Cement availability has increased and prices have remained constant. Bookings for non-trade sector have commenced and the prices in the segment are higher than that for trade segment. Cement price in the eastern region has sequentially increased fourth month, with a latest increase by Rs 20 per bag to Rs 265. Price in western, southern and central region stood at Rs 260, Rs 255 and Rs 240 respectively per bag, with no major price movement during the month.

Industry outlook

All-India cement demand is expected to grow by 4.5% in FY12E against 4.4% in FY11 as demand from the housing and infrastructure segments to remain under pressure on account of key issues like rising cost of capital, land acquisition and clearances and unavailability of key raw materials like coal to the manufacturing industry, the consumption has been subdued during the year and grew by 3.9% Y-o-Y in April-November 2011. However, the slowdown in construction activities would remain a key concern. The utilization rate is expected to decline further to 73% in FY12E and would remain at the same level in FY13E on account of high additions in effective capacity as against incremental demand. For FY13E, we expect the utilization rate to remain at 75%. However, it is expected to start improving from H2FY`13E onwards as incremental demand is likely to keep pace with the additions in effective capacities. The cement industry which offers high visibility of revenue and earnings in phase of high growth typically loses its shine during the time of economic slowdown.

UltraTech Cement

On a cumulative basis (April-November 2011), dispatches of the company remained flat at 24.8MT on account of low demand across the country particularly in the southern region, where the company has good exposure. 

> UltraTech reported a decline of -3% M-o-M in its dispatches for November at 3.1 MT. On Y-o-Y basis the company dispatch volume grew 16%. 

> The production in the last month has decreased by 7.1% M-o-M to 3.0 MT. The cumulative production during the April-November period of this year remained flat at 25 MT, a increase on merely 1.1%.

ACC Cement

ACC continued its impressive performance in terms of volume growth. The company`s dispatches for Nov`11 beg off 7% M-o-M to 1.83 MT. Its cumulative sales during the April-November period stood at 15.4MT, improving by 11% compared to same period last year. 

> ACC`s production in the last month declined by 10.3% M-o-M to 1.8 MT, while during April- November Period, volume increased by 11.2% to 15.3 MT. 

> Robust volume growth was due to combined effect of low base in 2010 and commencement of new capacity of 3 MT per annum in December last year and new addition which began fully operational from September 2011.

Ambuja Cement

Ambuja Cement reported a positive growth in dispatches for the second consecutive month in the current financial year. It had registered a decline in the dispatches in the first three months of FY11. 

> The company has registered a 2.8% volume growth in November 2011 to 1.83MT. Cumulative volumes (Apr-Nov 2011) improved by 6.5% to 13.7MT. 

> The production for the month increased by 0.5% M-o-M to 1.8MT. On a cumulative basis (April-Nov 2011) production increased to 13.5MT, showing an increase of 3.5%.

JP Associates

Jaiprakash Associates outperformed its peers in terms of volume growth. It witnessed 12.8% M-o-M volume growth during the last month and the dispatches stood at 1.59MT. 

> The cumulative sales during April-Nov period improve by 14.3% Y-o-Y to 11.3MT.