Marwadi Shares & Finance (MSFL) believes that cement industry is set to witness another quarter of strong performance. Delayed monsoon in most parts of the country has enabled decent demand across regions, Cement prices witnessed lesser than anticipated correction post CCI verdict and were stable during Q1. On the cost side, though playerswitnessed y-o-y higher costs, sequentially they were flat. International coal prices have softened during Q1, however, impact was nullified by higher rupee depreciation, limitingplayers ‘gains. Overall it expects industry to post a 12-15% top line growth on a low base and a moderate earnings growth for Q1. Cement stocks continued to trade ahead of their valuations and outperformed the indices.
``We maintain cautious outlook on the sector. We have SELL rating on large caps due to expensive valuations and are positive on select midcaps- Shree, JK Lakshmi and Dalmia Bharat,`` MSFL added.
``Industry recorded 7% growth for FY12. We expect it to post strong 11% demand growth for Q1, partially on account of delayed monsoon in most parts of the country, which have enabled a double digit growth for Q1. MSFL coverage also is expected to report 11% volumes growth. However sequentially, Q1 volume would register a decline of 4-5%. We expect demand to be soft in next couple of quarters on account of monsoon. We expect industry to report utilization of 76% for the quarter.
The discipline by cement players across the regions, particularly in South has been holding the prices for past few quarters. Moreover they corrected only marginally post much awaited CCI verdict against the cement makers which makes us believe that cement prices would be soft during next couple of months only due to seasonality,
In the absence of any major cost hike coupled with stable prices during Q1, we expect players Q1 margins to be flat y-o-y. Though imported coal prices contracted sharply during Q1, impact was almost mitigated by even sharper rupee depreciation against the US dollar. We otherwise expect continued cost pressure which in turn will exert pressure onplayers` margins going ahead,`` it said.
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The cement industry in India is dominated by around 20 organizations, which account for approximately 70% of the total cement manufacture in India. In the latest year, the Indian cement industries have produced 11 MT cement.
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