|
(In Rs crore) |
As on |
Absolute change |
% change |
|
0ct 29, 04 |
3-Nov-03 |
|
Grasim |
9941.03 |
8104.94 |
1836.09 |
22.65 |
|
Gujarat Ambuja |
6134.58 |
4741.54 |
1393.04 |
29.38 |
|
ACC |
4578.55 |
4088.88 |
489.67 |
11.98 |
|
Madras Cements |
1026.14 |
802.46 |
223.67 |
27.87 |
|
India Cements |
532.88 |
412.31 |
120.57 |
29.24 |
|
Birla Corp |
1042.72 |
403.15 |
639.57 |
158.64 |
|
Shree Cement |
686.87 |
354.67 |
332.20 |
93.66 |
| |
| Demand: Demand growth in the domestic market between April and October this year was a reasonable 6 per cent, compared with the industry's long-term CAGR of around 8 per cent. Between April and August, the demand was a weak 3 per cent but for Q2FY05, volumes were up 6.6 per cent.
|
| |
| The reasons for the initial weak demand are the elections and early monsoons which may have stalled construction activity. Dispatches in October were strong.
|
| |
ACC, for instance, saw a 14 per cent rise y-o-y, while Grasim saw an 8 per cent increase. Housing and infrastructure are together expected to spur demand growth to about 7 per cent for FY05 and further to 8 per cent by FY06.
|
Demand-supply balance | |
(Million tonnes per annum) | |
|
FY03 |
FY04 |
FY05E |
FY06E | |
Cement capacity |
137.00 |
144.50 |
150.90 |
157.00 | |
Clinker capacity |
114.70 |
121.50 |
125.90 |
129.00 | |
Capacity growth (%) |
1.00 |
6.00 |
4.00 |
3.00 | |
Demand growth (%) |
8.00 |
6.00 |
6.00 |
8.00 | |
Domestic consumption |
107.60 |
114.10 |
120.90 |
130.60 | |
Growth in consum. (%) |
9.00 |
6.00 |
6.00 |
8.00 | |
Cement exports |
3.50 |
3.40 |
3.90 |
4.30 | |
Export growth (%) |
5.00 |
-3.00 |
15.00 |
10.00 | |
Capacity utilisation (%) |
81.00 |
81.00 |
83.00 |
86.00 |
|
| |
| Supply: No major capacity additions are on the cards for the next 14 months or so and the routine debottlenecking should result in an increase of 3-4 per cent of capacity in FY05 and FY06. Shree Cements 'capacity is expected to be commissioned in 2005 while Dalmiya Cements' capacity should go on stream in 2006, taking capacity to about 157 million tonnes in FY06.
|
| |
| The demand -supply gap should thus narrow and some analysts feel that there could be a small shortfall by end-FY06, with exports also picking up. Capacity utilisation for the industry is expected to touch 87 per cent by FY06 compared with 84 per cent in FY04.
|
| |
| Pricing: Domestic prices have gone up by about 8 per cent year to date on an average over FY04 levels and about 15-16 per cent over the lows in September FY03. However, prices remain weak in the western region.
|
| |
| For instance, in Gujarat, prices - which were at around Rs 140 per bag in September - fell around Rs 20-Rs 25 per bag in October. Prices in Mumbai dropped marginally by about Rs 3-4 a bag in October over September.
|
| |
| Realisations have been better in the northern and eastern parts, thereby propping up realisations overall.
|
| |
| According to industry sources, near-term concerns on pricing remain but this could be resolved over the longer term with demand growing enough to match the supply.
|
| |
| Prices are expected to rise between 7 and 10 per cent varying with the region. However, export realisations are up 40-50 per cent over the last year on the back of the construction boom in the middle-east.
|
| |
| Earnings: According to analysts, high cement prices in both domestic and export markets together with volume growth will drive earnings. They expect earnings to grow at a CAGR of 35 per cent over FY04-06 though fuel costs, which account for 20-25 per cent of the operating costs for cement manufacturers, are up.
|
| |
| The rise in prices in the medium term, they feel, should more than offset the huge rises in freight and fuel costs as also expenses on wages, though there may be some pressure on margins in the near term.
|
| |
| As such till the next capex cycle starts, the earnings momentum would continue to be strong.
|
| |
| Valuations: Analysts recommend stocks such as ACC, Gujarat Ambuja and Grasim which are trading a an EV/EBITDA of 7.1-9.4. for FY05 and 6.2-7 for FY06. |
| |
