idirect_cementmonthly_june2013

7/28/2019 IDirect_CementMonthly_June2013

1/6CICI Securities Ltd.|Retail Equity Research

June 28, 2013ment Monthly: June 2013

Prices rise to cover losses from falling volumes

Cement prices recover in June; demand remains tepidAll-India cement prices saw an uptrend led by price hikes across all

regions in the country. The southern region saw an average price hike of| 30/bag, the highest among all regions, which took the all-India average

June 2013 prices to | 308/bag as compared to | 294/bag in May 2013. In

the east and west region, prices increased by | 15-20/bag, which took

average prices in the east and west region to | 333/bag and | 306/bag,

respectively, for June 2013. In the northern and central region, prices

increased in the range of | 5-10/bag, taking the northern & central price

average to | 296/bag and | 293/bag, respectively. Demand fell drastically

across regions mainly due to early arrival of monsoons and a general

slowdown in the infrastructure sector. With this upward pricing trend, all-

India average cement prices stood at | 308/bag, a rise of ~| 14/bag MoM.

On a YoY basis, prices are up by | 15/bag. According to dealers, cement

prices are expected to remain firm in the coming days, which is importantto cover the costs as volumes are not supporting and falling continuously

due to monsoon arrival in the country.

Cement dispatches decline on low demandMangalam and JK Lakshmi reported cement dispatches numbers for May

2013. Cement volumes for both these companies declined 14.6% and

12.5% YoY respectively. Given the weak macro environment, slowdown

in housing demand and low infra spending by government, we expect

prices to see some correction going ahead. Hence, we continue to remain

cautious on the sector unless we see a clear trend of healthy recovery in

volumes.

Industry outlookAll-India cement dispatch growth for FY13 remained tepid due to sluggish

consumption from the housing and infrastructure 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.

Although we expect H1FY14 to remain tepid in terms of demand, we

continue to remain neutral with a positive bias on the industry as we

believe the demand supply scenario will improve on the back of a pick-up

in infra spending by the government (with higher allocation towards

expenditure vs. last year) and revival in private sector spending on likely

softening of the interest rate cycle.

xhibit 1:Valuation matrixCMP(|) TP(|) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E

CC* 1222 1340 56.4 78.9 89.6 21.7 15.5 13.6 10.2 10.2 7.5 121 121 120 14.4 16.8 17.4 18.8 16.2 20.8

mbuja* 185 205 8.4 10.6 11.5 22.0 17.5 16.1 10.2 9.9 7.5 167 154 138 14.7 15.4 14.7 20.9 15.7 19.0

ltraTech 1872 2 040 96.8 93.4 117.8 19.3 20.1 15.9 11.5 11.0 9.0 189 158 156 17.4 14.3 15.4 18.7 16.5 18.4

hree Cem 4667 4725 275.4 273.4 320.4 16.9 17.1 14.6 9.0 8.1 6.5 165 162 135 28.1 22.2 21.0 24.6 23.3 23.4

dia Cem 57 71 5.3 6.3 8.5 10.7 9.1 6.7 5.5 5.6 5.0 53 55 55 4.0 4.5 5.8 8.1 7.3 8.6

K Cem 224 302 33.4 28.7 35.6 6.7 7.8 6.3 4.5 6.0 5.0 58 78 58 13.8 10.7 12.0 14.5 10.8 12.4

K Lakshmi 99 136 14.9 18.7 20.9 6.5 5.2 4.6 4.5 4.4 3.8 67 75 50 13.9 14.8 14.5 11.5 11.2 11.8

Mangalam 115 155 29.0 22.8 31.6 4.0 5.0 3.6 3.5 4.2 2.5 40 47 28 15.7 11.0 13.6 14.0 9.3 14.2

eidelberg* 42 58 1.4 0.5 2.8 32.6 30.9 15.1 25.7 12.9 6.7 71 56 49 3.6 1.3 7.0 2.3 4.9 9.9

ompany

EPS (|) P/E (x) EV/EBITDA (x) EV/Tonne ($) RoNW (%) RoCE (%)

ource: Company, ICICIdirect.com Research

ote: For ACC, Ambuja,& Heidelberg FY12,FY13E and FY14E denotes CY12, CY13E and CY14E

ector View

eutral

ement dispatches

Mn Tonnes May-13 May-12 YoY (%) Apr-13 MoM (%)

Mangalam 0.15 0.17 -14.6 0 .17 -10.3K Lakshmi 0.39 0.45 -12.5 0.40 -0.8

otal 0.54 0.62 -13.1 0.56 -3.6

All India average cement price (|/50 kg bag)

200

220

240

260

280

300

320

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Jun-13

|./

bag

All India average cement price

| 308

ource: Cement dealers

Analysts name

Rashesh Shah

[email protected]

Ricky Gupta

[email protected]


2/6ICICI Securities Ltd.|Retail Equity Research Page 2

North region: Prices rise ~| 5-10/bag MoM in June 2013In the north, cement prices on an average rose by | 5-10/bag MoM in

June 2013 accompanied by a huge fall in demand. Average cement prices

in the region stood at | 296/bag during the month. Delhi witnessed a price

increase of | 15/bag while Gurgaon and Jalandhar witnessed a rise of

| 10/bag. On a YoY basis, prices in the region rose by | 20-25/bag.

According to our discussion with dealers, prices are expected to remain atcurrent levels in the near term owing to prices bottoming out in the

previous months that hurt margins.

Exhibit 2:Cement prices in northern region

150

170

190

210

230

250

270

290

310

330

Jun-1

1

Aug-

11

Oct-11

Dec-

11

Feb-1

2

Apr-12

Jun-1

2

Aug-

12

Oct-12

Dec-

12

Feb-1

3

Apr-13

Jun-1

3

|/bag

Delhi Jaipur Amritsar

Source: Cement dealers, ICICIdirect.com Research

East region: Prices rise | 15-20/bag

Continuing the rising trend, prices in the eastern region rose by | 15-

20/bag in June 2013. Average cement prices in the region stood at| 333/bag during the month. Kolkata saw a price increase of ~| 25/bag

MoM while prices in Patna and Raipur increased by | 20/bag MoM.

According to dealers in the region, prices are expected to remain stable at

these levels over the next couple of days.

Exhibit 3:Cement prices in eastern region

150

200

250

300

350

400

450

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Jun-13

|.

/bag

Kolkata Patna Bhubaneswar

Source: Cement dealers, CMIE,, ICICIdirect.com Research

Prices in Delhi increased by | 15/bag MoM due to rising

cost pressure and already bottomed out prices

Average cement prices increased by | 15-20/bag. The gap

between the regions average price and the price in Kolkata

widened to | 57/bag



Western region: Prices rise | 10-15; fall in Surat & Ahmedabad

Cement prices in the western region increased by | 10-15/bag on an MoM

basis in June 2013. Prices in Mumbai increased by a marginal | 5/bag

while prices increased by | 50/bag in Pune. In Nagpur and Nasik, price

increased by | 25/bag and | 20/bag, respectively. Prices in Surat and

Ahmedabad fell in the range of | 10-15/bag. Average prices in this regionstood at ~| 306/bag in June 2013, up by | 13/bag from last month.

According to dealers, prices are likely to be volatile in the near term.

Exhibit 4:Cement prices in western region

150

200

250

300

350

Jun-1

1

Aug-1

1

Oct-11

Dec-1

1

Feb-1

2

Apr-1

2

Jun-1

2

Aug-1

2

Oct-12

Dec-1

2

Feb-1

3

Apr-1

3

Jun-1

3

|/bag

Mumbai Nagpur Ahmedabad


South region: Cement prices pick up; Hyderabad prices increase 40%

Average cement prices in the southern region have risen by | 25-30/bag

MoM in June 2013. Prices in Hyderabad rose by | 85/bag and stood at| 300/bag crossing | 280 levels after more than a year. Prices in Bangalore

increased by | 20/bag on a MoM basis. In Chennai and Kochi, prices

increased in the range of | 5-10/bag. Average prices in the southern

markets were | 311/bag in June 2013, up | 30/bag on an MoM basis. On a

YoY basis, prices are up by | 13/bag in South.

Exhibit 5:Cement prices in southern region

100

150

200

250

300

350

Jun-

11

Aug-

11

Oct-11

Dec-

11

Feb-

12

Apr-12

Jun-

12

Aug-

12

Oct-12

Dec-

12

Feb-

13

Apr-13

Jun-

13

|/bag

Hyderabad Chennai Bangalore


In the western region, average cement prices increased by

| 10-15/bag amid high volatility and heterogeneous price

fluctuations among cities

Prices in Hyderabad increased by | 85/bag MoM crossing

| 280/bag after more than a year



Central region: Prices rise by ~| 5-10/bag MoM in June 2013

Average cement prices in the central region have risen by ~| 5-10/bag

MoM in June 2013. Prices in Bhopal and Ghaziabad increased by | 10/bag

MoM. In Lucknow, Allahabad and Indore, prices increased by | 5/bag on

an MoM basis. Average cement prices in this region stood at ~| 293/bag,

higher by | 5/bag compared to last month. According to dealers, prices inthe region are likely to remain choppy in the coming months due to

sooner-than-expected monsoon arrival and less movement in price as

compared to price changes in other regions across India.

Exhibit 6:Cement prices in central region

150

200

250

300

350

Jun-

11

Aug-

11

Oct-1

1

Dec-1

1

Feb-

12

Apr-12

Jun-

12

Aug-

12

Oct-1

2

Dec-1

2

Feb-1

3

Apr-13

Jun-

13

|/bag

Lucknow Indore Ghaziabad


Cement dispatches in May 2013 declines on poor demand

Mangalam and JK Lakshmi reported cement dispatches numbers for May2013. Cement volumes for both these companies declined 14.6% and

12.5% YoY, respectively. Given the weak macro environment, slowdown

in housing demand and low infra spending by the government, we expect

prices to see some correction, going ahead. Hence, we continue to

remain cautious on the sector unless we see a clear trend of healthy

recovery in volumes.

Exhibit 7:May 2013 dispatchesMn Tonnes May-13 May-12 YoY (%) Apr-13 MoM (%) YTDFY13 YTDFY12 YoY (%)

Mangalam 0.15 0.17 -14.6 0.17 -10.3 0.31 0.33 -4.6

JK Lakshmi 0.39 0.45 -12.5 0.40 -0.8 0.79 0.77 1.9

Total 0.54 0.62 -13.1 0.56 -3.6 1.10 1.10 0.0 Source: Company, ICICIdirect.com Research

Cement prices increased by ~| 5-10/bag MoM in central

regions coupled with extremely weak demand



Valuations

We expect volume CAGR of 9.7% during FY13-15E for cement companies

under our coverage. Higher volume growth is expected in Heidelberg

Cement (~25.4%), UltraTech Cement (~13.6%) and Mangalam Cement

(~16.7%) led by capacity expansion. On the realisations front, we expect

moderate growth of 4-5% each in FY13E, FY14E led by a pick-up in infra

spending by the government (with higher allocation towards expenditure

vs. last year) and revival in private sector spending on likely softening of

the interest rate cycle. Given the expansion led growth in volumes, we

expect cement companies to post a topline CAGR of ~13.2% during

FY13-15E. Margins are expected to improve progressively on account of

an improvement in realisations and volume led operating leverage

benefits.

Exhibit 8:Key financials| Crore FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E

ACC* 24.1 24.9 27.6 11130.6 11379.2 13705.6 1969.0 1966.7 2630.2 1059.3 1483.5 1683.1 56.4 78.9 89.6

Ambuja Cement* 21.4 22.2 24.4 9674.9 9992.6 11874.4 2417.7 2296.2 2881.4 1297.1 1619.4 1760.3 8.4 10.6 11.5

UltraTech Cement 41.5 46.1 53.6 20020.9 22163.5 27525.2 4522.8 4715.9 5679.8 2655.6 2560.0 3229.2 96.8 93.4 117.8

Shree Cement** 12.7 14.4 15.1 5770.5 6318.3 7026.6 1583.5 1713.7 1991.7 958.3 951.5 1115.0 275.4 273.4 320.4

India Cement 10.1 10.5 10.9 4597.0 4844.3 5237.7 843.3 827.9 958.0 163.5 192.1 259.6 5.3 6.3 8.5

JK Cement 5.8 6.1 6.4 2904.0 3043.8 3404.4 552.1 552.4 680.7 233.6 200.6 249.3 33.4 28.7 35.6

Orient Paper 3.8 4.0 4.1 2458.6 2647.3 2955.7 394.3 277.9 492.3 212.5 143.2 280.9 11.0 7.0 13.7

JK Lakshmi 5.3 5.7 6.4 2054.9 2350.1 2806.3 428.7 493.1 576.6 175.7 220.7 246.4 14.9 18.7 20.9

Mangalam Cement 1.9 2.0 2.6 698.7 765.8 1051.8 123.3 120.9 193.8 77.3 60.8 84.5 29.0 22.8 31.6

Heidelberg Cem* 2.9 4.3 4.6 1101.2 1696.1 1892.0 74.4 141.6 235.8 30.8 10.9 63.1 1.4 0.5 2.8

Sales EBITDA PATCement Volume# EPS

Source: Company, ICICIdirect.com Research

# Cement volumes in million tonnes, * FY13/FY14E/FY15E denotes CY12/CY13E/CY14E, **FY13E/FY14E/FY15E denotes JY13E/JY14E/JY15E

On the valuations front, we are neutral on large caps like ACC, Ambuja,

UltraTech and Shree Cements due to expensive valuations. We remain

positive on midcap cement companies like JK Cement, JK Lakshmi,

Mangalam Cement and Heidelberg Cement on account of growth in sales

volumes and earnings, improvement in return ratios and inexpensive

valuations.

Exhibit 9:Valuations & recommendationsMarket Cap CMP TP Rating FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E

ACC* 22961 1222 1340 HOLD 21.7 15.5 13.6 10.2 10.2 7.5 121 121 120

Ambuja Cement* 28305 185 205 HOLD 22.0 17.5 16.1 10.2 9.9 7.5 167 154 138

UltraTech Cement 51330 1872 2040 HOLD 19.3 20.1 15.9 11.5 11.0 9.0 189 158 156

Shree Cement** 16241 4667 4725 HOLD 16.9 17.1 14.6 9.0 8.1 6.5 165 162 135

India Cement 1751 57 71 HOLD 10.7 9.1 6.7 5.5 5.6 5.0 53 55 55

JK Cement 1566 224 302 BUY 6.7 7.8 6.3 4.5 6.0 5.0 58 78 58

JK Lakshmi 1142 99 136 BUY 6.5 5.2 4.6 4.5 4.4 3.8 67 75 50

Mangalam Cement 307 115 155 BUY 4.0 5.0 3.6 3.5 4.2 2.5 40 47 28

Heidelberg Cem* 952 42 58 BUY 32.6 30.9 15.1 25.7 12.9 6.7 71 56 49

P/E EV/EBITDA EV/Tonne ($)

Source: Company, ICICIdirect.com Research

* FY12/FY13E/FY14E denotes CY11/CY12E/CY13E, ** FY12 denotes 15MJY12, FY13E/FY14E denotes JY13E/JY14E



ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

Sector view:

Over weight compared to index

Equal weight compared to index

Under weight compared to index

Index here refers to BSE 500

Pankaj Pandey Head Research [email protected] Research Desk,ICICI Securities Limited,1st Floor, Akruti Trade Centre,Road No 7, MIDCAndheri (East)

Mumbai 400 093

[email protected] CERTIFICATIONWe/I, Rashesh Shah CA, Ricky Gupta MBA, research analysts and the authors of this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views

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idirect_cementmonthly_june2013

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