UltraTech Cement records higher dispatch numbers in Nov 2011

UltraTech Cement, India's largest cement manufacturing company, recently released its Nov 2011 dispatch figures. The company witnessed a higher growth in its sales volumes during the month, with production growing by 13% and dispatches growing by 16.6% on a YoY basis to 3.09 MT. However, the year 2010 saw the lowest Nov dispatches, which created a lower base effect. This is also one of the reasons for the higher growth rate in the Nov 2011.

Moreover, if we look at the MoM performance, the dispatches have declined by 3%, which is mainly due to a slowdown in the construction and infrastructure activity. Also, cement is cyclical business and generally, fares better in the 2nd half of the financial year. However, the Nov 2011 dispatch growth remained muted on a MoM basis, which hints at the slow pickup in demand. We expect the demand to remain at a low in the current quarter, and to gain momentum in Q4 FY12.

On the pricing front, cement companies have raised the prices of cement across the country from Oct 2011 onwards. In most of the regions, the prices have shot up by Rs 10- l5 per 50-kg bag. Even the southern cement players have increased the prices in Nov 2011, after maintaining them in the previous quarter. However, we believe that this increase in prices may not sustain due to weak demand in the region.

We, at DSIJ, believe that UltraTech Cement will witness a muted growth in volumes in the current quarter. The company has increased the cement prices in order to offset the high coal prices and freight charges, which constitute 50% of the total cost. However, in view of the continued concerns related to higher input costs and lower demand, it will witness some pressure on their margins in the coming quarter.