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Tuesday, December 06, 2011

Fw: Investor's Eye: Update - Cement (Low-base effect boosts volumes in November), Media (FDI limit to hike in cable industry....)

 
Investor's Eye
[December 05, 2011] 
Summary of Contents
SECTOR UPDATE
Cement      
Low-base effect boosts volumes in November
  • Cumulative volume for pan-India players grew by 16.3% on low base effect: The volume growth of the top three domestic cement players, namely ACC, Ambuja Cements and UltraTech Cement (UltraTech), for November 2011 was impressive on a year-on-year (Y-o-Y) basis. This was largely on account of the low base of November 2010. Among the companies Ambuja Cements registered a robust 29.3% growth in its dispatches due to the low base effect (in November 2010 the company's dispatches had dropped by 9% year on year [YoY]) and an improvement in the cement offtake. Further, UltraTech has also posted an impressive dispatch growth of 16.3% YoY for the month. On the other hand, ACC has posted a 5.2% growth in its dispatches. Hence, cumulatively the pan-India players have registered a 16.2% volume growth. On a month-on-month (M-o-M) basis the cumulative dispatches declined by 2.7%. 
  • Cement offtake remains sluggish, western region witnessed improvement: In terms of demand, dealers have confirmed that the cement offtake in most parts of the country remained sluggish primarily due to the slowdown in the real estate segment and slower than expected execution of government infrastructure projects. Further, the political hurdle in Andhra Pradesh also remained a key drag on the volume growth of Andhra Pradesh, which is a major state of the southern region. However, the issue of unavailability of river sand in the western region was resolved during November and hence the cement offtake in the region was relatively better. The southern and eastern regions continued to face a sluggish demand environment. 
  • Cement price hike in most parts of the country, southern region remains stable: During the month cement prices in most parts of the country increased by Rs5-15 per bag of 50kg. The western and eastern regions witnessed the highest price hike month on month (MoM) whereas cement prices in the southern region remained largely unchanged on an M-o-M basis. The price hike was largely on account of the supply discipline mechanism followed by the manufacturers. However, dealers are of the view that the current price hike is likely to sustain (except in the eastern region) in the near term as cement offtake is expected to improve going ahead. 
  • Outlook: remain bullish on Grasim and Orient Paper: We believe the sector could underperform in the near term as there is a possibility that the cement manufacturers may fail to adhere to supply discipline due to a likely pick-up in the cement offtake. However, we believe any correction in the sector will provide the investment opportunity for select companies. We prefer Grasim Industries (Grasim) in the large-cap space and Orient Paper and Industries (Orient Paper) in the mid-cap space.
 
Media      
FDI limit to hike in cable industry....


Hike in FDI limit in cable: favourable regulatory framework fuels growth prospects
After making digitisation of cable TV across the country compulsory by December 31, 2014, the government is set to increase the foreign direct investment (FDI) limit in the sector from 49% to 74%. The Telecom Regulatory Authority of India (TRAI)'s recommendation to increase the FDI limit from 49% to 74% for direct-to-home (DTH) TV, Internet Protocol TV (IPTV) and teleport has been validated by the information & broadcasting (I&B) ministry. 
Currently FDI is allowed up to 74% in mobile TV, HITS and IPTV whereas the permissible foreign investment cap for cable distribution companies is 49%. The move will make the distribution of FDI uniform across platforms including DTH, IPTV, mobile TV, HITS and cable companies. However, the FDI ceiling for local cable operators will remain 49 % (it has been so since 1995) as the recommendation to reduce it to 26% by TRAI has been rejected by the I&B ministry.
According to industry estimates, the total fund requirement for the DTH and cable industry will be close to Rs250-300 billion for the successful implementation of digitisation. Thus, an increase in the FDI limits will make the funding easier for the companies in an environment of high interest cost coupled. Besides, most companies already have high debts on their books. 
View: We view this development as a welcome breather for the Indian cable distribution sector, which is reeling under high debts and negative cash flows. As the cable industry is gearing up for the compulsory digitisation mandate, it has become important for the companies to equip themselves with funds to create the necessary infrastructure. The possible increase in the FDI limit to 74% will help the companies to garner funds without creating further pressure on the balance sheets. We remain positive on the DTH space from a longer-term perspective. However, we remain selectively biased toward Dish TV.
 
"Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article."
 
 
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Regards,
The Sharekhan Research Team
myaccount@sharekhan.com