Fw: Investor's Eye: Update - Housing Development Finance Corporation (Growing steadily despite competition), Cement (August 2012 dispatches affected by monsoon)

 

 

Investor's Eye [September 05, 2012]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE   Housing Development Finance Corporation Cluster: Evergreen Recommendation: Buy Price target: Rs785 Current market price: Rs724 Growing steadily despite competition  We interacted with the management of HDFC recently to understand the impact of the rising competition in the mortgage segment on the company and the other industry trends. According to the management, the spate of rate cuts announced by banks for mortgage loans will not have any impact on HDFC's business growth as the company enjoys a premium of 25-50 basis points in interest rates due to its better servicing levels and lower turn-around time compared with its peers. Except for State Bank of India (SBI), the other public sector banks (PSBs) are unlikely to provide any major competition to HDFC. Further, the company continues to focus on the quality of its book instead of market share. Hence, it should be able to grow the book at 20% in FY2013. The spreads are likely to be maintained within the guided range of 2.15-2.35% (2.27% in Q1FY2013). We believe the company is well capitalised and better equipped to face the competition. We estimate its earnings would expand at a compounded annual growth rate (CAGR) of 19% over FY2012-14. We maintain our Buy recommendation on HDFC with a sum-of-the-parts (SOTP)-based price target of Rs785 (valuing the subsidiaries and the investments at Rs235 per share). SECTOR UPDATE Cement August 2012 dispatches affected by monsoon Cumulative volume of pan-India players declined by 4.9% YoY in August 2012: The volume growth of the two largest domestic cement players, ACC and Ambuja Cement, was affected by the monsoon rains during August 2012. ACC has posted a year-on-year (Y-o-Y) decline of 6.9% in its dispatches for the month. On the other hand, Ambuja Cement has posted a 2.4% Y-o-Y contraction in its dispatches for the same period. Hence, the cumulative dispatches of the pan-India players declined by 4.9% year on year (YoY). On a sequential basis (ie compared with the July 2012 figures), the cumulative dispatches of the pan-India players declined by 10.5%. Cement offtake affected by monsoon: In terms of demand, cement dealers have confirmed that the cement offtake in most parts of the country was affected by the monsoon season. The cement offtake in the northern, western and central regions was relatively better due to improved rural consumption and a partial pick-up in the execution of infrastructure projects. However, the slowdown in the demand in the southern region continued during August 2012. Going ahead, the dealers expect the cement offtake to remain muted till mid October 2012.  Cement prices declined by around Rs12-15/bag in most parts of India: During August 2012, the cement prices corrected by an average of Rs12-15/bag in most parts of the country on account of the seasonal weakness (due to the monsoon rains). The correction in the cement prices was more severe in the southern region. According to the dealers, the cement prices may fall further in September 2012 due to a lacklustre demand environment. After taking into account the seasonal decline, we expect the average realisation for FY2013 to be higher (marginally) as compared with that in FY2012.  Outlook: remain positive on UltraTech and Orient Paper: With the likely increase in the infrastructure spending in H2FY2013 and strong rural consumption, we expect the demand to grow at around 8% in FY2013 against the 6.3% growth witnessed in FY2012. This would be achieved on the back of higher volumes and price realisations. The concern remains in terms of cement makers' failure to adhere to supply discipline which could be a key risk to the cement prices. Additional concerns remain in terms of cost pressures due to a sharp increase in the power tariff and an increase in the freight cost due to a rise in fuel prices and the lead distance.  We maintain our neutral stand on the sector. However, we are selectively positive on UltraTech Cement in the large-cap space and Orient Paper and Industries in the mid-cap space. Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.