Quick Take

Cement 15 December 2009

November 2009—central region shines
• All-India despatches increased 8.8% YoY in November 2009
(YTD growth at 10.7%).
• Central region recorded 17% YoY despatch growth, with a
rebound in infrastructure spends. South continues to lag.
• All-India capacity utilisation declined 230bps YoY to 81%,
primarily on account of sharp increase in capacities in the
south.
• We continue to be negative on south-based companies and
positive on north-based companies.
• A rebound in infrastructure construction in the central region led the
region’s despatches to grow 17% YoY. Dealers indicated renewed
thrust by Uttar Pradesh government on infrastructure projects. East,
north and west regions recorded 13% YoY growth each. In the
south, growth remained modest at 6% YoY as political instability in
Andhra Pradesh put pressure on demand growth (Regional growth
is calculated without ACC’s and Ambuja Cements’ numbers).
expect the north’s YoY capacity utilisation to decline from 4QFY10,
although the decline is likely to be moderate compared to the
southern region. (Regional utilisation calculated excluding
ACC’s and Ambuja’s numbers).
• Dealer check: Cement prices have increased by Rs5-15 per bag in
the western markets in the past one week. In Andhra Pradesh, the
price increase was about Rs5 per bag. Logistical constraints were the
main reason for these price hikes, according to dealers. Prices in
other southern states continue to be stable. In the east, prices
declined by Rs5-10 per bag, as supply pressure from MNC cement
players increased (driven by the need to report healthy volume
growth at year–end). Prices in the north and central regions are
stable.
Figure 1: Improvement in infrastructure spend boosts despatch growth
20.0
(YoY despatch grow th %)
16.0
12.0

8.0
• No new capacities were reported in November 2009; current
capacity for the industry is at 233.2mtpa. All-India capacity 4.0
utilisation declined 230bps YoY to 81%, primarily on account of a
sharp increase in capacities and poor demand in the south region. 0.0
We expect YoY utilisation decline to continue for another five

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quarters before a recovery.

• With a rebound in demand, capacity utilisation in the central region Source: CMA, Industry, IIFL Research
increased 17pps to 105%. The north’s utilisation increased 4pps to
84%. Utilisation in the east and west were flat YoY. Utilisation in the
south declined 14pps to 67%. We expect continued negative bias for
the south, as there are more capacity additions in the pipeline. We

J.Radhakrishnan z radhakrishnan@iiflcap.com z (91 22) 4646 4653

 Cement

Figure 2: Cement production and despatch data by region Figure 4: Valuation snapshot
November 2009 production November 2009 despatch Market Cap CMP Rating EV/EBIDTA (x) PER (x) P/BV EV/tonne
growth (%) growth (%) (US$m) (Rs) FY10ii FY11ii FY10ii FY11ii FY11ii FY11ii
YoY MoM YoY MoM ACC* 3,449 858 Reduce 5.7 7.4 9.5 12.5 2.3 107
North 13.2 -2.3 13.0 0.8 Ambuja Cements* 3,239 99 Add 7.0 5.9 12.3 11.0 2.0 124
East 19.2 4.0 13.2 -2.1 Grasim Inds 4,833 2,463 Add 4.0 3.5 8.1 10.2 1.4 -
South 4.5 -3.7 5.8 -2.4 India Cements 728 120 Sell 4.3 5.4 8.9 16.8 1.0 81
West 11.3 4.5 12.7 13.4 Kesoram Inds 344 351 Reduce 5.5 5.5 4.8 4.8 0.9 88
Central 21.4 11.9 16.6 9.3 Madras Cements 594 117 Sell 3.2 4.6 6.7 13.1 1.7 91
All India 10.0 1.5 8.8 2.5 Shree Cement 1,384 1,857 Add 3.9 4.0 6.8 7.4 2.2 73
Source: CMA
UltraTech Cement 2,394 899 Add 5.8 7.0 9.8 12.3 2.2 110
Note: Regional data is excluding ACC and Ambuja numbers
*CY09 and CY10 numbers
Figure 3: All-India capacity utilisation trend – 230bps YoY decline in November 2009 Source: Bloomberg, IIFL Research

FY10 FY09 FY08 FY07

110
Capacity utilisation (%)
100

90

80

70
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Source: CMA, ACC, Ambuja Cements

J.Radhakrishnan@iiflcap.com 2
 Cement

Key to our recommendation structure

BUY - Absolute - Stock expected to give a positive return of over 20% over a 1-year horizon.
SELL - Absolute - Stock expected to fall by more than 10% over a 1-year horizon.

In addition, Add and Reduce recommendations are based on expected returns relative to a hurdle rate. Investment horizon for Add and Reduce recommendations is up to a year. We
assume the current hurdle rate at 10%, this being the average return on a debt instrument available for investment.

Add - Stock expected to give a return of 0-10% over the hurdle rate, ie a positive return of 10%+.
Reduce - Stock expected to return less than the hurdle rate, ie return of less than 10%.

Published in 2009. © India Infoline Ltd 2009

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J.Radhakrishnan@iiflcap.com 3