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Dec 16, 2009, 09.21 AM IST | Source: CNBC-TV18

Cement demand improving but Karvy says won't upgrade stks

The cement industry has recently seen a spate of price hikes across regions. The Delhi region has seen a price of Rs 2-3 per bag, while western India has seen an uptick of Rs 10-15 per bag.

Amit Srivastava, Research Analyst, Karvy Stock Broking
The cement industry has recently seen a spate of price hikes across regions. The Delhi region has seen a price of Rs 2-3 per bag, while western India has seen an uptick of Rs 10-15 per bag.

In an interview with CNBC-TV18, Amit Srivastava, Research Analyst, Karvy Stock Broking spoke about the demand-supply situation and the happenings in the cement industry.

Here is a verbatim transcript of the exclusive interview with Amit Srivastava on CNBC-TV18. Also watch the accompanying video.

Q: What is your own estimate of cement realisations?

A: If we analyse what has got changed in the cement industry in the last one-two months, we found that demand has started moving up. In the last three months i.e. August-September-October, demand was not very robust. So the industry has decreased the capacity utilisation to match that kind of demand. But when demand started moving up they are not increasing the capacity utilisation.

So on the one side they are trying to match the demand supply situation and also the logistical problem which was there has also helped them to increase the prices not everywhere but mainly in regions where prices crashed sharply like in the southern region where the prices has gone down by around Rs 60-70, in western region the prices gone by Rs 30-40.

So, a Rs 10-15 bounce back is not going to give them any kind of sharp change in their financial estimates. Yes, definitely itís a positive sentiment for the industry because itís the beginning of their peak season. January-February-March is going to be the peak period for consumption.

So they may be able to maintain this kind of price level by controlling the capacity utilisation because if we look at the southern and western regions the capacity utilisation is still below 80%.

So that way they are maintaining the demand supply situation and the price scenario. But the moment they start increasing the capacity utilisation to match the demand because the supply is going to be there, in the long-term we do not see any kind of change in fundamentals. Itís more a short-term kind of a trend which is giving the opportunity for the cement industry to marginally increase the prices.

We do not have a buy rating on any of the cement stocks because we do not see any kind of change in fundamentals of the cement industry from this Rs 5-10 price hike because this price is still below our expectation in the model whatever we have factored-in. Itís still trading below that price. So it is not changing our recommendation right now.

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