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8/3/2019 Cement Sector Result Updated
http://slidepdf.com/reader/full/cement-sector-result-updated 1/6
Please refer to important disclosures at the end of this report 1
Healthy performance on the volume front: During 3QFY2012, our cement
universe posted reasonably healthy 8.1% yoy growth in volumes, much better
than 3.9% dispatches growth reported in 1HFY2012. Volume growth in
3QFY2012 was led by strong pick-up in demand across regions, with the western
region posting the highest 25.0% yoy growth. The southern region, which had
been posting a decline in demand over the past six quarters, showed signs of
revival with 3.2% yoy growth, aided by cooling of Telangana agitation. Demand
in the western region was boosted by improved offtake from government-
sponsored projects, infrastructure and individual housing segments. Madras
Cements, predominantly a south-based player, was the top performer in the
universe, registering 19.1% yoy volume growth. Ambuja Cements was the top
performer amongst large players, reporting 10.8% yoy growth.
Strong performance on the realization front negates cost pressure: Power and fuel
cost for the universe rose by 10.7% yoy due to twin effects of higher coal prices
(both domestic and imports) and cheaper INR vs. USD. Freight costs were also
higher by 12.5% yoy due to the increase in diesel costs and surcharge levied by
railways. However, growth in cement realization was too strong to offset cost
pressures. OPM of the cement universe rose by healthy 267bp yoy to 21.6%, with
all companies under our coverage barring Ambuja Cements posting OPM
expansion in the range of 100bp to 1,350bp on a yoy basis. JK Lakshmi posted
the highest expansion in OPM of 1,352bp yoy to 21.4%. Cement realization,
which had remained strong in the past one year due to producer discipline, was
aided by pick-up in demand. Our cement universe posted 18.4% yoy higher
realization during the quarter; on a sequential basis, realization was higher by 7.5%.
Outlook and valuation: Going ahead, the rate of capacity addition is set to
moderate, with only 31mtpa of capacity expected to be added over FY2012-13E,
much lower than 55mtpa added over FY2010-11. However, demand slowdown
has become a bigger concern with FY2012E demand growth expected to be
~5%. Thus all-India utilization in FY2012 is expected to be 72.4%. In our view,
the cement sector’s valuations in terms of EV/sales and EV/tonne are trading
ahead of the cycle when compared to utilization levels and are almost 40% moreexpensive than historical valuations during periods of similar utilization levels.
Hence, we maintain our Neutral view on the sector. That said, we maintain our
Buy recommendation on JK Lakshmi Cement due to its attractive valuations, as it
is trading at EV/tonne of US$28 on FY2013E capacity.
V Srinivasan
022-39357800 Ext: 6831
Sourabh Taparia
022-39357800 Ext 6872
Cement Sector
Robust performance
Result Review | 3QFY2012
February 22, 2012
Exhibit 1: Relative valuation
CMP Target Sales (` cr) OPM (%) PAT (` cr) EV/EBITDA (x) EV/tonne (US $) Reco Upside
Company (`) (`) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E (%)
UltraTech 1,480 - 18,228 20,033 21.7 21.7 2,037 2,267 10.3 9.0 159 154 Neutral -
ACC* 1,325 - 9,660 10,874 20.3 20.6 1,325 1,311 11.6 10.0 140 139 Neutral -
Ambuja Cements* 165 - 8,603 9,777 23.4 24.0 1,229 1,422 11.3 9.6 158 157 Neutral -
Shree Cement 2,691 - 4,497 5,383 25.3 26.1 237 421 7.5 5.5 104 82 Neutral -
India Cements 100 - 4,079 4,318 19.3 18.6 298 301 5.4 5.3 56 55 Neutral -
Madras Cements 140 - 3,165 3,327 30.3 28.2 377 379 6.2 5.7 63 55 Neutral -
JK Lakshmi Cement 62 79 1,629 1,868 18.5 20.4 123 149 3.8 2.6 34 28 Buy 27
Source: Com an , An el Research, Note: * December endin com anies, EV/tonne ad usted for CPP
8/3/2019 Cement Sector Result Updated
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3QFY2012 Results Review | Cement
February 22, 2012 2
Universe reports 28.9% top-line growth in 3QFY2012
Exhibit 1: 3QFY2012 revenue growth strong on a yoy basis...
Source: Company, Angel Research, Note: The red horizontal line represents the average for our
coverage universe; Shree Cement’s cement business posted revenue growth of 44.9%
Exhibit 2: ...due to a sharp yoy increase in realization
Source: Company, Angel Research
Exhibit 3: ...and healthy yoy growth in dispatches
Source: Company, Angel Research
23.127.8 30.2
61.4
20.4
28.0
39.7
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
UltraTech ACC Ambuja
Cements
Shree
Cement
India
Cements
Madras
Cements
JK Lakshmi
Cement
(%)
16.4
20.317.5
33.2
16.2
8.6
26.3
0.0
5.0
10.0
15.020.0
25.0
30.0
35.0
40.0
Ultra TechCement
ACC AmbujaCements
ShreeCement
IndiaCements
MadrasCements
JK LakshmiCements
(%)
5.7 6.3
10.8
8.8
6.9
19.1
12.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
UltraTech ACC AmbujaCements ShreeCement IndiaCements MadrasCements JK LakshmiCement
(%)
Revenue growth was the highest for
players with capacities in North India,
primarily because of strong yoy
realization growth in the northern and
western regions – the main markets for
these players
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3QFY2012 Results Review | Cement
February 22, 2012 3
Exhibit 4: Realization per tonne growth on a qoq basis
Source: Company, Angel Research
Operating costs per tonne of the universe rose by 9.9% yoy
Exhibit 5: Power and fuel cost per tonne increased on a yoy basis
Source: Company, Angel Research
Exhibit 6: Freight cost per tonne also witnessed a yoy increase
Source: Company, Angel Research
6.0
11.3 11.8 11.4
0.7
(2.4)
15.0
(4.0)
(2.0)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Ultra TechCement
ACC AmbujaCements
ShreeCement
IndiaCements
MadrasCements
JK LakshmiCements
(%)
18.1
21.7
(4.6)
10.8
7.4
(0.2) (8.5)
(10.0)
(5.0)
0.0
5.0
10.0
15.0
20.0
25.0
Ultra TechCement
ACC AmbujaCements
ShreeCement
IndiaCements
MadrasCements
JK LakshmiCements
(%)
9.1
18.3
12.2
21.1
5.1
15.6
8.4
0.0
5.0
10.0
15.0
20.0
25.0
Ultra Tech
Cement
ACC Ambuja
Cements
Shree
Cement
India
Cements
Madras
Cements
JK Lakshmi
Cements
(%)
South-based players witnessed a qoq
decline in realization because 3Q is the
monsoon season for major part of southern India
Both imported as well as domestic coal
costs were higher on a yoy basis. Power
tariffs were also higher on a yoy basis.
However, for JK Lakshmi Cement,
power and fuel costs per tonne declined
because of improvement in usage
efficiency
Higher petroleum products cost andhigher railway freight charges played
the spoiler here
8/3/2019 Cement Sector Result Updated
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3QFY2012 Results Review | Cement
February 22, 2012 4
Operating margin improved albeit costs surged
Exhibit 7: EBITDA margin improvement on a yoy basis...
Source: Company, Angel Research
284
101(63)
697
443
243
1,352
(200)
0
200
400
600
800
1,000
1,200
1,400
1,600
UltraTech ACC AmbujaCements
ShreeCement
IndiaCements
MadrasCements
JK LakshmiCement
(bp)Resultantly, all players barring north-
based players faced margin pressure.
Northern players witnessed a huge
increase in margins on account of a
sharp yoy increase in realization
coupled with cost savings due to usage
efficiency (particularly for JK Lakshmi
Cement power consumption per tonne
of cement declined from 80 to 77)
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3QFY2012 Results Review | Cement
February 22, 2012 5
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.
Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .
Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or
other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in
the past.
Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in
connection with the use of this information.
Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.
Disclosure of Interest Statement
Analyst ownership Angel and its Group companies Angel and its Group companies' Broking relationship
of the stock ownership of the stock Directors ownership of the stock with company covered
ACC No No No
Ambuja No No No
India Cements No No No No
J K Lakshmi No No No No
Madras Cements No No No No
Shree Cements No No No No
UltraTech No No No No
Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Cement Results Review | February 2011
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3QFY2012 Results Review | Cement
February 22, 2012 6
6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 39357800
Research Team
Fundamental:
Sarabjit Kour Nangra VP-Research, Pharmaceutical [email protected]
Vaibhav Agrawal VP-Research, Banking [email protected]
Shailesh Kanani Infrastructure [email protected]
Bhavesh Chauhan Metals & Mining [email protected]
Sharan Lillaney Mid-cap [email protected]
V Srinivasan Research Associate (Cement, Power) [email protected]
Yaresh Kothari Research Associate (Automobile) [email protected]
Hemang Thaker Research Associate (Capital Goods) [email protected]
Nitin Arora Research Associate (Infra, Real Estate) [email protected]
Ankita Somani Research Associate (IT, Telecom) [email protected]
Varun Varma Research Associate (Banking) [email protected]
Sourabh Taparia Research Associate (Cement, Power) [email protected]
Technicals:
Shardul Kulkarni Sr. Technical Analyst [email protected]
Sameet Chavan Technical Analyst [email protected]
Sacchitanand Uttekar Technical Analyst [email protected]
Derivatives:
Siddarth Bhamre Head - Derivatives [email protected]
Institutional Sales Team:
Mayuresh Joshi VP - Institutional Sales [email protected]
Hiten Sampat Sr. A.V.P- Institution sales [email protected]
Meenakshi Chavan Dealer [email protected]
Gaurang Tisani Dealer [email protected]
Akshay Shah Sr. Executive [email protected]
Production Team:
Simran Kaur Research Editor [email protected]
Dilip Patel Production [email protected]
CSO & Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheri (E), Mumbai - 400 093.Tel.: (022) 3083 7700. Angel Broking Ltd: BSE Sebi Regn No: INB010996539 / PMS Regd Code: PM/INP000001546 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / NSE Sebi Regn Nos: Cash: INB231279838 /NSE F&O: INF231279838/Currency: INE231279838 / MCX Currency Sebi Regn No: INE261279838 / Member ID: 10500 / Angel Commodities Broking Pvt. Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302
Cement Sector Update | Shree Cement