Fairval

Notes on Indian equities, sectors and economy

Cement – Gathering strength

Posted by fairval on January 27, 2006

Cement demand is finally showing signs of strength. From Apr-Dec, it is running at 11%, crossing into double digits after 5 years. We checked cement data from 1973. It appears cement demand growth rarely crosses into 2 figures. In the last 3 years or so, infra spends and housing both, have grown at strong rates. Infra construction companies like Gammon, Hindustan Construction etc have grown at 40-50% topline growth. Urban housing market is growing at over 30% again. So why does cement find it so difficult to reach even 2 figures?

Cement companies have never given satisfactory answers. One reason could be rural demand. Rural india has had 2 years of above normal monsoon. So maybe there is demand picking up there. Other reason could simply be cement companies reporting sales more honestly, given that stock market is riding high.

Whatever be the reason, capacity utilisations are edging up. From around 83% 2 years ago, they are now closing in on 87% level. Prices have moved up this year, average 15-20% more than last year. Cement profits are doing well, though not for all companies. Ultratech for ex, still has 76% or so capacity utilisation. Cement stocks have moved up, but some are still cheap. Grasim, Ultratech, Prism for example. Grasim-Ultratech (AV Birla Group) looks good.

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