Cement utilization rate may remain at around 75% for FY13E

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Cement utilization rate may remain at around 75% for FY13E

R K Global has come come out with its report on cement sector. According to the research firm cement utilization is expected to start improving from H2FY’13E onwards as incremental demand is likely to keep pace with the additions in effective capacities.

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R K Global has come come out with its report on cement sector. According to the research firm cement utilization is expected to start improving from H2FY'13E onwards as incremental demand is likely to keep pace with the additions in effective capacities.

The volume growth for the top three domestic cement players viz ACC, Ambuja Cements and UltraTech Cement for the month of December 2011 was mixed on Y-o-Y basis. Among the companies, UltraTech registered a better performance with a robust 10.6% growth in its dispatches. ACC and Ambuja Cements posted a growth in their dispatches of 5.7% and 5.6% respectively. Hence, the pan India players have cumulatively registered a 6.2% volume growth. On M-o-M, all the large players remained improved slightly. While Jan-Dec 2011dispatches grew 7.7%.

Demand impact: It appears that the supply discipline that was in place broke down in Dec'11. Apart from the Southern region, which maintained supply discipline and hence registered a 6.1% Y-o-Y growth in Dec, the rest of the country saw 14% Y-o-Y growth in dispatches. But most of the material went into restocking, and we are expecting a slight improvement in demand due to upcoming elections in Uttar Pradesh, Goa, Manipur, Punjab and Uttarakhand.

Price Scenario: All-India cement prices continue to increase by an average of Rs 9 per bag. On regional basis northern region have witnessed a decrease of ~Rs 6 per bag in Dec'11. With the onset of severe winter during December in Delhi and NCR, construction activity during the month has harshly affected, the average price in the region has decreased by ~Rs 13 per bag to ~Rs 248 per bag in Delhi. On all India basis 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 decreased after four consecutive hikes till Nov'11, to Rs 259. 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 of Dec'11. However, the onset of January, southern region have seen an increase in price in the by Rs 5-20 per 50 kg bag.

All India cement dispatches is expected to remain smooth by ~5% Y-o-Y in Jan'12, as the four major companies, holding ~65% of the total cement capacity, reported a 5.2% growth in dispatches for the month. On M-o-M basis, the overall volume of the four companies rose by ~8.2%. In Dec'11 the total sales volume grew ~9% Y-o-Y on the back of inventory build-up by cement dealers and consumers anticipating price hikes. The demand from the housing and infrastructure segments to remain under pressure on account of key issues like 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-Dec 2011. However, the slowdown in construction activities would remain a key concern. 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-Dec 2011), dispatches of the company remained flat at 28.5MT on account of low demand across the country particularly in the southern region, where the company has good exposure. UltraTech reported a increase of 17% M-o-M in its dispatches for December at 3.6 MT. On Y-o-Y basis the company dispatch volume grew 10.6%. The production during the month of December has also increased by 17.5% M-o-M to 3.6 MT. The cumulative production during the April-December period of this year remained flat at 28.6 MT, an increase on merely 2.2%.

ACC Cement : ACC continued its impressive performance in terms of volume growth. The company's dispatches for Dec'11 increased 10.9% M-o-M to 2.0 MT. Its cumulative sales during the April-December period stood at 17.4MT, improving by 6% compared to same period last year. ACC's production in the last month increased by 14.2% M-o-M to 2.1 MT, while during April- December Period, volume increased by 11% to 17.4 MT. The company has postponed its brown field expansions of 5 mn ton to CY12, due to subdued demand in the near-term. It is expected to incur a capex of Rs 5 bn p.a. for waste heat recovery plant, wind power and modernization at various plants.

Ambuja Cements : After amalgamation of Ambuja Cement with Holcim (India) Pvt Ltd. Ambuja reported a positive growth in dispatches for the month of Dec'11. While during the year the company increased its capacity to 27mtpa as compared to 18.6mtpa last year. The company has registered a 5.4% M-o-M volume growth in December 2011 to 1.9 MT. Cumulative volumes (Apr-Dec 2011) improved by 6.3% to 15.6MT. The production for the month increased by 5.3% M-o-M to 1.9MT. On a cumulative basis (April-Dec 2011) production increased to 15.4MT, showing an increase of 3.9%.

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To read the full report click on the attachment