Rise in infra projects to drive demand growth
Understanding the dynamics of the cement demand across the country has become important at a time when the industry’s production forecast will rise from 218 million tonne (mt) at the end of FY09 to nearly 300 mt by the end of FY12, according to br...
By Amriteshwar Mathur, ET Bureau |
Understanding the dynamics of the cement demand across the country has become important at a time when the industry’s production forecast will rise from 218 million tonne (mt) at the end of FY09 to nearly 300 mt by the end of FY12, according to broking firms’ estimates.
During the period April–October ‘09, the industry’s total cement despatches grew 11% to 111.5 mt, which compares favourably with a 7.9% YoY growth in despatches in FY09, and an 8% YoY growth in FY08. Strong demand conditions are vital for the cement industry, as players typically raise prices when their capacity utilisation crosses 85%. In FY09, the utilisation level of the industry was 88%.
According to a recent MF Global report, growth in cement despatches in April-October has been driven mainly by robust output growth, especially in the North and the East.
In the northern region, including Rajasthan, Delhi and Punjab, total cement despatches in April-October ‘09 touched nearly 26 mt, a rise of 17% on a YoY basis. Besides capacity addition by some, this growth is attributed to strong demand conditions emanating from rising construction activities due to the Commonwealth Games and other infrastructure projects in the region.
Growth during the current year in the North is better than the earlier years. For instance, in FY09, cement despatches grew 8.75% YoY, while it had improved 12.6% YoY in FY08. In the East, including Bihar, Jharkhand, West Bengal, Chhattisgarh and North-Eastern states, total cement despatches were estimated at 16 mt in April-October ‘09, a rise of 15% YoY.
It is understood that demand in the region has been driven by road construction projects. Growth in despatches in the East in the current financial year was better than the 4.6% YoY growth reported during FY09, and 3.7% in FY08.
However, the western region reported just a 6% YoY growth in April-October due to sluggish demand conditions, especially in Gujarat. ACC, at Rs 854.2, trades with a P/E of nearly 10.4 on a trailing four quarter basis and we are neutral on this stock. Other large players like Ambuja Cements trades at 12 times and appears expensive, while Grasim at 7.6 times appears reasonable.
During the period April–October ‘09, the industry’s total cement despatches grew 11% to 111.5 mt, which compares favourably with a 7.9% YoY growth in despatches in FY09, and an 8% YoY growth in FY08. Strong demand conditions are vital for the cement industry, as players typically raise prices when their capacity utilisation crosses 85%. In FY09, the utilisation level of the industry was 88%.
According to a recent MF Global report, growth in cement despatches in April-October has been driven mainly by robust output growth, especially in the North and the East.
In the northern region, including Rajasthan, Delhi and Punjab, total cement despatches in April-October ‘09 touched nearly 26 mt, a rise of 17% on a YoY basis. Besides capacity addition by some, this growth is attributed to strong demand conditions emanating from rising construction activities due to the Commonwealth Games and other infrastructure projects in the region.
Growth during the current year in the North is better than the earlier years. For instance, in FY09, cement despatches grew 8.75% YoY, while it had improved 12.6% YoY in FY08. In the East, including Bihar, Jharkhand, West Bengal, Chhattisgarh and North-Eastern states, total cement despatches were estimated at 16 mt in April-October ‘09, a rise of 15% YoY.
It is understood that demand in the region has been driven by road construction projects. Growth in despatches in the East in the current financial year was better than the 4.6% YoY growth reported during FY09, and 3.7% in FY08.
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However, the western region reported just a 6% YoY growth in April-October due to sluggish demand conditions, especially in Gujarat. ACC, at Rs 854.2, trades with a P/E of nearly 10.4 on a trailing four quarter basis and we are neutral on this stock. Other large players like Ambuja Cements trades at 12 times and appears expensive, while Grasim at 7.6 times appears reasonable.
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