Cement Sector Update- Dealer Interaction- Centrum 121213

7/27/2019 Cement Sector Update- Dealer Interaction- Centrum 121213

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Please refer to important disclosures/disclaimers insideCentrum Equity Research is available on Bloomberg, Thomson Reuters and FactSet

Sluggish demand leads to price volatilityWe maintain our cautious stance on cement stocks in the near-term as the demand

continues to be sluggish leading to increased volatility in prices. Cementdespatches continue to remain sluggish, based on our recent interaction withcement dealers across India. Dealers believe that exaggerated issues of shortageof sand and low infrastructure activities continue to impact their sales volume.Cement prices continue to remain volatile with sharp drop in the West region andsignificant increase in the Central region in the past one month. In our view, betterdemand and price stability will be key catalysts for stock performance. Wedowngrade our rating on JK Cement to Hold after recent run up in stock price.

Cement prices remain volatile: Average pan-India price declined 0.7% MoM toRs300/bag in Dec 13 led by sharp price fall in the West region. Apart from the Central

region (price increase of 5.9% MoM), average price declined in all other regions. Dealers

say volatility in cement price has increased recently with cement companies planning to

increase prices frequently, but this does not seem tenable due to lack of demand.

Average price ~2% higher than in Q2FY14 - Compared to Q2FY14 average, currentpan-India price is higher by ~Rs7/bag (~2%) to Rs300/bag. Average price in the North /

Central region is up 5.4%/3.2%. In East and South regions, the average price is 1-2%

higher. In the West region, average price is down 0.6% in the same period. However,

demand revival remains key for prices to sustain at higher levels as low demand led to

sharp reduction in cement prices in December 12 and January 13.

Weak demand scenario prevails: In our note last month, we pointed out that cementsales at dealers end was very poor and in our recent interaction, we find that demand

continues to remain subdued at most places. In the near-term, demand is expected to

be muted due to exaggerated issues of shortage of sand and low infrastructure

activities. Cement production grew by mere 1% YoY in Oct 13 post a robust 11.5%

growth in Sept 13 (source: DIPP). We believe that production was muted in Nov 13 and

that too, on a lower base of Nov 12 (de-growth of 0.4% YoY). Outlook & Valuation: We believe that earnings of cement companies may

disappoint again in Q3FY14 and there could be further earning downgrades. We

understand that earnings of cement companies are highly sensitive to prices and

any upside surprise in prices will trigger a rally in stocks. But, we prefer to wait for

signs of demand revival and pricing stability in order to turn positive. On a relative

basis, we prefer ACC, Shree Cement and Grasim Industries. We downgrade our

rating on JK Cement to Hold (earlier: Buy) post recent rally in the stock price as we

believe the sales volumes of the company continue to be under pressure in the

South region, which could result in disappointment in earnings. Maintain Sell on

Ambuja and India Cements.

Price Performance (%)

1M 6M 1Yr

ACC (7.4) 5.8 (12.1)

Ambuja Cement (10.7) 13.7 (3.8)

Ultra Tech Cement (3.3) 16.5 (1.3)

Grasim Ind (4.2) 12.7 (14.1)

Shree Cements (3.3) 16.7 (9.1)

India Cement 20.0 22.3 (29.3)

JK Cement 1.5 8.9 (19.4)

NIFTY (1.3) 15.5 0.1

Source: Bloomberg, Centrum Research; Prices as on 20 November, 2013

Retail Price in different cities (Rs/bag)

Cities Dec 13 Dec 12 YoY (%) Nov 12 MoM (%)

Delhi 265 270 (1.9) 275 (3.6)

Jaipur 230 284 (19.0) 265 (13.2)

North (Avg) 278 281 (0.9) 279 (0.3)

Allahabad300 260 15.4 270 11.1Kanpur 320 270 18.5 280 14.3

Central (Avg) 294 279 5.4 278 5.9

Ahmedabad 258 280 (7.9) 275 (6.2)

Mumbai 315 280 12.5 325 (3.1)

West (Avg) 276 288 (4.0) 296 (6.6)

Hyderabad 260 250 4.0 270 (3.7)

Bangalore 340 325 4.6 340 -

South (Avg) 321 301 6.6 324 (0.8)

Patna 335 330 1.5 340 (1.5)

Kolkata 330 350 (5.7) 335 (1.5)

East (Avg) 328 333 (1.5) 332 (1.0)

India (Avg) 300 297 1.1 302 (0.7)

Source: Cement Dealers, Centrum Research

Region-wise movement of cement price

250

285

320

355

390

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13

Jun-13

Jul-13

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13

(Rs/bag)

North Central West

South East Pan-India average Source: Cement Dealers, Centrum Research

Sanjeev Kumar [email protected]

+91 22 4215 9643

Summary valuations

Mkt Cap Target Up/ Down EPS (Rs) P/E (x) EV/EBITDA ( x)Company Rating (Rsbn) (US$bn) CMP (Rs) Price (Rs) Side (%) FY13 FY14E FY15E FY13 FY14E FY15E FY13E FY14E FY15E

ACC* Hold 210 3.4 1,120 1,242 10.9 70.4 52.2 69.8 19.8 21.5 16.0 9.2 11.8 9.0Ambuja* Sell 281 4.6 182 149 (18.2) 9.8 7.1 9.0 18.6 25.7 20.3 10.0 14.9 11.5UltraTech Hold 513 8.3 1,871 1,813 (3.1) 100.0 83.8 104.8 18.7 22.3 17.9 11.4 12.5 9.3

Grasim Hold 248 4.0 2,699 3,088 14.4 278.9 258.0 304.0 9.2 10.5 8.9 5.1 5.5 4.1India Cement Sell 18 0.3 59 40 (32.7) 7.8 4.2 6.4 7.6 14.1 9.3 4.9 5.5 4.8Shree Cement^ Hold 150 2.4 4,301 4,528 5.3 287.9 225.4 297.1 14.9 19.1 14.5 8.5 8.9 7.1JK Cement Hold 15 0.2 209 236 13.1 33.0 18.3 28.1 6.3 11.4 7.4 4.5 9.0 6.2

*December ending companies; Year-end June, Source: Company, Centrum Research Estimates

Cement

Dealer Interaction Note 12 Dec 2013

INDIA

Cement [Sector Name]


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Exhibit 1:Movement of cement price in the North region Exhibit 2:Movement of cement price in the Central region

200

230

260

290

320

350

Nov-12

Jan-13

Mar-13

Apr-13

Jun-13

Aug-13

Oct-13

Dec-13

(Rs/bag)

1) Delhi 2) Gurgaon 3) Jodhpur 4) Jaipur

5) Amritsar 6) Shimla North

220

250

280

310

340

Nov-12

Jan-13

Mar-13

Apr-13

Jun-13

Aug-13

Oct-13

Dec-13

(Rs/bag)

1) Allahabad 2) Varanasi 3) Bhopal

4) Jabalpur 6) Kanpur 7) Indore

Source: Cement Dealers, Centrum Research Source: Cement Dealers, Centrum Research

Exhibit 3:Movement of cement price in the West region Exhibit 4:Movement of cement price in the South region

240

270

300

330

360

Nov-12

Jan-13

Mar-13

Apr-13

Jun-13

Aug-13

Oct-13

Dec-13

(Rs/bag)

1) Ahmedabad 2) Mumbai 3) Rajkot

4) Pune 5) Surat West

180

235

290

345

400

Nov-12

Jan-13

Mar-13

Apr-13

Jun-13

Aug-13

Oct-13

Dec-13

(Rs/bag)

1) Hyderabad 2) Chennai 3) Bangalore

4) Cochin South


Exhibit 5:Movement of cement price in the East region Exhibit 6:Region-wise movement of cement price

260

300

340

380

420

N

ov-12

Jan-13

Mar-13

Apr-13

Jun-13

A

ug-13

Oct-13

Dec-13

(Rs/bag)

1) Patna 2) Bhubaneswar 3) Kolkata East

250

285

320

355

390

N

ov-12

D

ec-12

J

an-13

F

eb-13

M

ar-13

A

pr-13

M

ay-13

J

un-13

Jul-13

A

ug-13

S

ep-13

O

ct-13

N

ov-13

D

ec-13

(Rs/bag)

North Central West

South East Pan-India average



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Appendix A

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Cement Sector Update- Dealer Interaction- Centrum 121213