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Published on 14/03/2019 11:36:20 AM | Source: ICICI Securities Ltd

Cement Sector - Volume growth remains strong; prices improved significantly in Feb`19 By ICICI Securities

Posted in Broking Firm Views - Sector Report| #Cement Sector #Sector Report #ICICI Securities

 

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Volume growth remains strong; prices improved significantly in Feb’19

Our channel checks suggest the cement industry continued to post low doubledigit volume growth during Feb’19, despite high base and sharp price hikes in the South and Maharashtra. Overall, we believe pan-India industry demand is likely to surprise positively, inching up to 11-12% YoY growth in FY19, resulting in improvement in cement utilisation to ~75% and clinker utilisation to ~79% during the year. Average pan-India prices improved sharply by ~5% MoM or Rs16/bag in Feb’19 with the South region witnessing maximum average uptick of ~12% MoM led by better production discipline and improving utilisation. Similarly, prices are likely up 4-5% MoM in West and Central and 1-2% MoM in the North and East regions. Additional price hikes of Rs15-20/bag in South and Maharashtra and Rs5-10/bag in most other regions have been announced in Mar’19. Besides, Rs70-80/te benefit from fall in various input prices (8-17% from recent highs) is likely to accrue from Q4FY19 onward. SRCM and UTCEM are our top picks; we also like ACC and ACEM.

 

Volumes likely improved in low double digits YoY to ~30mnte

* South likely registered mid-teen volume growth in Feb’19

despite high base and sharp price hikes. Trade prices in Andhra Pradesh / Telangana were hiked by up to Rs80/bag while the same were hiked by up to Rs50-60/bag in Karnataka / Tamil Nadu led by both better production discipline and improving utilisation. Additional price hikes of Rs15-20/bag have been announced in most parts of South region during Mar’19.

* East likely registered mid-teen volume growth in Feb’19

led by increased IHB, low-cost housing and infrastructure demand. Average cement prices increased 1-2% MoM across most states in the region in Feb’19.

* Demand in West likely grew in high-single digit YoY

with improved demand in both Maharashtra and Gujarat led by better offtake in government infrastructure projects and rural housing. Average prices increased sharply by ~5% MoM mainly led by Maharashtra as prices stood almost flat MoM in Gujarat in Feb’19.

* Demand in North and Central regions likely grew in mid-single digit YoY

impacted by adverse weather conditions (extreme cold) and high base of last year while it continues to be healthy in Uttar Pradesh. Average prices increased sharply by 4% MoM in the Central region while the same was up 1% MoM in the North in Feb’19. Average pan-India prices up 4% YoY in Feb’19 with 5-7% YoY increase in South and Central regions, and 1-3% YoY rise in North, East and West. While the impending general elections may impact demand during Q1FY20, most companies continue to expect 7-8% demand growth for FY20. With improving utilisation across most regions, we expect pricing newsflow to remain positive over the next few months.

 

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