Prefer Shree Cement, ACC in cement space: Emkay

• All India prices at Rs308/bag +2.3% mom. Supply shortage led by plant shutdowns & delayed monsoons helping demand; prices in north hiked +6% mom, central + 4% & western 3% mom. Price likely to soften with pick up of monsoon in August.
• Subdued demand exerting downward pressure in eastern region-prices decline 3.6% mom. Electricity cuts drive AP upwards Rs20/bag hikes. Other southern regions remain flat
• Prices trend has surprised in June July period despite some unusual decline seen during April-May period. Price recovery positive for producers
• Cost pressure peaking out with international coal prices decline. Prefer ACC & Shree Cement. Retain HOLD on Ultratech (prefer Grasim). Maintain REDUCE on Ambuja & India Cement.

Outlook: The period of April May witnessed prices declining which was an unusual trend . However June July period has been a recovery which has been mainly due to shortage in supply and a delayed monsoon which has given producers a extra window to push up prices. This recent hike will undoubtedly become a cushion for the seasonal fall in cement prices with the pick up in monsoon and is likely to positively surprise the street on the realization front . This fact was clearly visible with Ultratech’s result, the largest pan India cement producer and has led to upgrades in the estimates for FY13 and FY14. The market doesn’t seem to succumb to the pressure of the recent penalties levied by the Competition Commission of India and the delayed monsoons have provided producers with another window to cushion themselves from the seasonal fall which is likely to follow with the pick up in monsoons in the coming few weeks. Net net we see this as a positive trigger for cement producers with key costs seeming to have peeked out while high realizations resulting in upwards revision for companies like Ultratech. Prefer ACC & Shree Cement. Retain HOLD on Ultratech (prefer Grasim ). Maintain REDUCE on Ambuja & India Cements .

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