Cement stocks have underperformed the markets for quite sometime now. Results of nearly all cement companies have been disappointing. However we feel this sector presents a good contrarian stock picking opportunity
The over-capacity led to a fall in cement prices by about ` 5-10 per bag in most regions in the month of May.
Analysts expect demand to pick up after September and estimate that it will grow by about 10% annually, on the back of higher spending on infrastructure projects, as well as investments in the rural and urban housing segments. While this should provide comfort, higher input costs (in the form of increased coal prices going forward) and transportation costs, and the lack of pricing power due to severe competition, is likely to continue putting pressure on their margins.
Cement volumes for Q1FY2011 were lower on q-o-q basis, as cement off-take traditionally slows down in the first quarter of a fiscal, as labour productivity is hit by summer season and later by onset of monsoon. However, on a y-o-y basis, the industry is likely to register a volume growth of close to 9%. On revenue front, cement stocks under our coverage are likely to register a cumulative 8% y-o-y growth in revenue, largely due to growth in volumes. Demand for cement inIndia
Cement volumes for Q1FY2011 were lower on q-o-q basis, as cement off-take traditionally slows down in the first quarter of a fiscal, as labour productivity is hit by summer season and later by onset of monsoon. However, on a y-o-y basis, the industry is likely to register a volume growth of close to 9%. On revenue front, cement stocks under our coverage are likely to register a cumulative 8% y-o-y growth in revenue, largely due to growth in volumes. Demand for cement in
Indian cement industry sustained its growth rate even in the tough condition of economic slowdown. Cement production increased 10.8% year-on-year in 2009-10. Almost all cement majors expanded their installed capacity in the backdrop of government backed construction projects since these projects have created strong demand for cement in the country. Moreover, it is anticipated that industry players will continue to increase their annual cement output in coming years and the country’s total cement production will grow at a CAGR of around 10.5% during 2010-11 to 2013-14.
On the regional front, Northern Region (including Uttar Pradesh, Rajasthan, Madhya Pradesh and Haryana) is leading the country in terms of cement consumption. Sufficient raw material availability and various incentives provided by state governments make this region lucrative for investments. Accordingly we recommend investors to buy stocks like Prism, Shree Cements etc which have a good exposure to the Northern and Central Indian Markets and are available at very cheap valuations.
On the regional front, Northern Region (including Uttar Pradesh, Rajasthan, Madhya Pradesh and Haryana) is leading the country in terms of cement consumption. Sufficient raw material availability and various incentives provided by state governments make this region lucrative for investments. Accordingly we recommend investors to buy stocks like Prism, Shree Cements etc which have a good exposure to the Northern and Central Indian Markets and are available at very cheap valuations.
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