Slowdown seen in cement sector

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Slowdown seen in cement sector

CNBC-TV18's Shravan Sreenivasula throws light on the cement sector. The cement sector has seen a decrease in sales growth over the last four quarters, APAT growth has been lower than sales growth for the first time.

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By-Shravan Sreenivasula, CNBC-TV18

Continuing with the series on possible downturn in India Inc, today the focus is put on the cement sector.

The cement sector has seen a decrease in sales growth over the last four quarters, APAT growth has been lower than sales growth for the first time.

The quarterly sales growth of the past few quarters is as follows; December, 2006- 51%, March, 2007- 37%, June, 2007- 26%, September, 2007- 21%, December, 2007-13%. Meanwhile, the quarterly adjusted PAT growth is as follows; December, 2006- 315%, March,  2007- 60%, June, 2007- 33%, September, 2007- 34% and December, 2007- 11%.

Where stocks are concerned, Holcim made an open offer to ACC at USD169/tonne, and then at USD245/tonne. On an EV/tonnne basis the stocks look fairly valued.

The EV per tonne ratio of a few cement like ACC is USD 183, Gujarat Ambuja  is USD 208 and Ultratech  is USD 183.

Cement prices will be seeing a downward revision, with prices moving in a narrow range. The factors behind this downward revision are severe winter slowdown in December and January, slowdown in demand in Central and Eastern India that accounts for 30% of total demand.

While, the demand from Southern and Western India remain strong, there have been delays in adding capacities. The current capacity is around 170 mtpa. Though there are plans to add 100 mtpa in 3 years; in this fiscal less than 10 mt has been added.

The Rail Budget too has pointed to an increase in imports. There is pressure due to raw material costs as well as Inventory build up in last 8 months. A slowdown in real estate construction and possibility of early elections may dampen demand further.

The FY09 EPS outlook for few stocks in the sector as per Deutsche Bank is ACC at Rs 97.8 Vs consensus of Rs 76.1. MF Global's FY09 EPS estimate for Grasim is at Rs 364 Vs consensus of Rs 296. The EPS may also see downward revisions.

The FY09 estimated EPS as per CNBC-TV18's consensus is; ACC- Rs 62 vs 76, Gujarat Ambuja at Rs 8.5 vs 10, Grasim at Rs 223 vs 296 and Ultratech at Rs 69 vs 90.