| Summary of Contents
| SECTOR UPDATE Cement Seasonal pick-up in demand Key points -
All India cement dispatches for the month of December grew 15.1% YoY: As per the provisional data released by the Cement Manufacturers Association (CMA), the all India cement dispatches for the month of December 2011 grew by a strong 15.1% on a year-on-year (Y-o-Y) basis to 15.8 million tonne. On a month-on-month (M-o-M) basis, the dispatches during December 2011 have grown by 11.9%. However, on a year till date (YTD) basis (April - December 2011), the all India cement dispatches have grown by 4.5% which is below industry expectations. The volume growth during the month of December 2011 was driven by a pick-up in demand in the western, northern and eastern regions of the country and also on account of inventory pile up at the dealer level. -
Among the pan-India players UltraTech takes the lead: The volume growth of the top three domestic cement companies - ACC, Ambuja Cements and UltraTech Cement (UltraTech) for the month of December 2011 was impressive on a Y-o-Y basis on account of a pick-up in the cement offtake in the north, west and the eastern region and inventory pile up at the dealer level. Among the large players UltraTech has taken a lead and posted an impressive dispatches growth of 10.2% year on year (YoY). On the other hand ACC and Ambuja Cements have posted an 8.9% and 6.8% growth respectively in their dispatches. Hence, cumulatively the pan-India players have registered a 9% volume growth. On a sequential basis (compared to November 2011) the cumulative dispatches of pan-India players have increased by 12.8%. -
Cement offtake recovered partially; remained sluggish in southern region: In terms of demand, dealers have confirmed that the cement offtake in most parts of the country has recovered partially during the month of December 2011 due to post monsoon pick-up in infrastructure activity. However, the southern region has continued to witness a sluggish demand environment due to political hurdles in Andhra Pradesh which is a crucial state in the southern region for the cement companies. The dealers are expecting momentum in demand to continue in the coming couple of months. -
Cement prices corrected in most parts of the country; southern regions remained stable: During the month, the price of cement corrected in the range of Rs5-15 per a bag of 50kg in most parts of the country. The eastern region has witnessed the highest price correction on an M-o-M basis. The price correction is largely on account of an increase in the supply. However, dealers are of the view that the prices may increase in the near term as cement offtake is expected to improve going ahead. Meanwhile, prices in the southern region remained largely unchanged during the month on a sequential basis. -
Outlook-We remain bullish on Grasim and Orient Paper: Due to the lower than expected spending on infrastructure projects in the country by the government, the volume growth on a YTD basis was sluggish and below industry expectation. However with the expiry of the monsoon, the cement offtake in Q3FY2012 has gained momentum and we believe it will continue for a coming couple of quarter. Further, the cement prices have remained at a healthy level on account of supply discipline followed by manufacturers. But with an increase in cement offtake, mid sized cement companies might break the supply discipline and this could be a concern on the sustainability of cement price at the higher levels. Hence, we maintain our neutral view on the cement sector but we are positive on select stocks. In the large sized space we prefer Grasim Industries (Grasim) and among the mid sized companies we like Orient Paper & Industries (Orient Paper).
Fertilisers
Consumption shift towards cheap fertilisers Key points -
Shift observed towards consumption of low cost fertilisers: In December 2011, the aggregate sales of domestically produced fertilisers (by 15 leading manufacturers) declined by 8% as compared to that in the same period of the previous year. The diammonium phosphate (DAP) production was hit by a tight supply of phosphoric acid, high cost of other inputs and also lower demand. However, the shortfall was made up by import of low grade complex fertilisers which are cheaper than DAP and muriate of potash (MOP). -
Urea offtake increased in the current rabi season: There was an increase of 8% in the consumption of urea in December 2011 mainly due to higher demand as its price is lower than that of other non urea fertilisers. The total of urea consumption has increased from 26.75 lakh tonne to 28.82 lakh tonne in December 2011. Urea is the largest consumed fertiliser in India as its price is still under government control. A shift towards a higher use of urea may again degrade the nutrient ratio of the soil in favour of nitrogen. -
Fertilisers dispatched volume remained stagnant in Q3FY2012: During Q3FY2012 consumption and dispatches of fertilisers remained stagnant on a year -on-year (Y-o-Y) basis despite a 25% fall in the production of indigenous DAP and 15% fall in the production of complex fertilisers. The demand for urea increased by 1.2% during the quarter ended December 2011, while consumption of imported complex fertilisers increased by 91.3% due to lower import of single graded fertilisers like DAP and MOP. -
Marginal drop in volume growth on YTD basis: For the first three quarters of FY2012, cumulative fertiliser sales (including imports and domestic production) declined slightly in the country. On a year-till-date (YTD) basis, the sale of domestically produced fertilisers has grown by 4.4% whereas the imports have declined by 16%. The decline in imports was on account of higher prices in international markets and low demand for MOP and DAP in the domestic market due to a sharp increase in their price. | | 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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