Cement dispatch numbers for Oct 2011

The Cement Manufacturers' Association released the Indian cement dispatch numbers for October 2011. The numbers did not provide any enthusiasm for the cement stock on the market, as dispatches were below the expectation, down by 1.91%.

The interesting point here is that the monsoons have ended, and the numbers came against the expectations of demand picking up post the monsoon. However, this can be looked at with the view that higher interest rates and the slowing economy have slowed down the pace of construction and infrastructure activity in the country, and demand will pick up pace slowly in the next few months, especially after the festive season. Further, we expect the demand to gain pace in Q4 FY12, which is when construction and infrastructure activity  typically remains at the peak level.

We believe that cement companies will see moderate growth in volumes in the coming quarter, as the pickup in demand will remain subdued. However, companies will try to increase their revenues by further increasing cement prices and cutting down production in order to offset the high coal prices and freight charges that constitute 50% of the total cost. Nevertheless, higher input costs are bound to put some pressure on their margins in the coming quarter.