Cement sector: Growth paradigm

ANALYSTS' CORNER

JM Morgan Stanley has an "attractive" view on the cement industry. The report believes that the sector faces its best-ever outlook over the next 12-18 months as demand grows (on the back of rising infrastructure and corporate capital expansion) and supply fails to keep pace.

The January 2006 numbers hint at what lies ahead. The industry has achieved a capacity utilisation of 98 per cent in January, a five-year high. Utilisations (adjusted for both grinding and blending) are expected to hit 95 per cent in FY07, which means that the sector will be operating at 100 per cent for most of the year (after removing the monsoon months).

Prices are likely to exceed the seven per cent target increase during the year as cement becomes difficult to source. FY08E capacity growth at 8.2 per cent (addition of 13.6 mt) will be faster than the demand growth of 7.2 per cent (local demand growth at eight per cent) resulting in a dip in utilisation.

Orchid Chemicals: Generics booster

Edelweiss Securities recommends a "buy" on Orchid Chemicals & Pharmaceuticals. The report states that the regulated market generics are set to grow.

Orchid's pipeline of 27 ANDAs and five approved products will boost its revenues from regulated markets exponentially, from 22 per cent in FY05 to 56 per cent in FY08E. For these markets, it is focusing on its key strength, antibiotics, and is thus better placed to capture these opportunities.

While near-term growth will come from cephalosporins and betalactums, longer-term growth will come from penems (a class of next generation antibiotics) and other non-antibiotics.

As demonstrated by approval for ceftriaxone vials, Orchid's established strength in antibiotics helps it get faster approvals.

AIA Engineering: Strong positioning

Stratcap Securities initiating coverage on the company rates it as "market outperformer". The report states that the company has launched an aggressive growth initiative that aims to consolidate its presence in the global cement market and create a strong competitive position in the hugely attractive, though challenging, mining market.

With a unique positioning that combines domain expertise with manufacturing competencies, the company is well placed to execute its plan. During its 28 years of existence, the company has established itself as a complete solution provider of high chrome cast mill internals.

Having serviced marquee clients, both in the domestic and overseas markets across cement, mining and utilities, it enjoys a near monopoly status in the domestic cement market and a respectable 20 per cent share, globally.