ICICIdirect neutral on Ambuja Cements, UltraTech Cement

ICICIdirect.com's report on cement space

"All-India cement prices saw a downtrend in July with all major companies going in for price cuts in majority of the cities across India. The regions that led the price cut were the north and west where average prices fell by Rs 12/bag. This led to all-India price falling to Rs 300/bag from Rs 308/bag in June 2013. The central region also saw a considerable fall in prices at Rs 284/bag, down ~Rs 9/bag MoM. The eastern region saw prices falling by Rs 5/bag to Rs 328. Prices in South India remained flattish led by a couple of hikes in some cities. Demand fell drastically across regions ranging from 15-40 percent depending on the region. Northern & western markets saw relatively lesser volume downgrades but the price cut was considerable in these regions. With this downward to flattish pricing trend, all-India average cement prices stood at Rs 300/bag, a fall of ~Rs 8/bag MoM. On a YoY basis, prices are down Rs 4/bag. According to dealers, companies are contemplating an increase in prices in a couple of days but there is a lot of uncertainty due to poor demand dynamics across regions." "All-India cement dispatch growth for FY13 remained tepid due to sluggish demand from the housing and infra segments on account of key issues like rising cost of capital, land acquisition & clearances and unavailability of key raw materials like coal for the manufacturing industry. Also, government led demand push growth remained lower in FY13. The current environment continues to remain challenging for the sector both in terms of poor demand and high cost environment. We believe the premium valuations of a few large cap cement companies like Ambuja Cements, UltraTech Cement are unjustified given the weak macro environment. However, the current replacement costs and market leadership of these companies are keeping them at rich valuations. Hence, we remain neutral on large caps like Ambuja and UltraTech Cement. We remain positive on select midcap companies due to attractive valuations on an EV/tonne basis," says ICICIdirect.com research report. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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