Cement Dispatch Grows By 9.8% In February 2012
DSIJ Intelligence / 14 Mar 2012
As mentioned in our earlier update, the cement industry continues to post good dispatch numbers on the back of improved demand scenario, which is evident from the figures for February 2012 strongly grown by 9.8 per cent on a YoY basis to 16.29 million
As mentioned in our earlier update, the cement industry continues to post good dispatch numbers on the back of improved demand scenario, which is evident from the figures for February 2012. As per the latest cement numbers released by the Cement Manufacturers Association, the dispatch for the month of February 2012 has strongly grown by 9.8 per cent on a YoY basis to 16.29 million tonnes against that of 14.83 million tonnes in the same period last year. And production for the month has increased by 8.9 per cent on a YoY basis.
Companies who have a pan-India presence have also reported decent growth in their dispatches. In particular, ACC and Ambuja reported a jump in dispatch by 7.5 per cent and 13 per cent on a YoY basis. The major rationale behind the cement sector doing better was the hike in the cement prices and decent pick-up in demand from the infrastructure and construction industry during the month. The trend can be seen from the third quarter GDP numbers wherein the construction sector grew by 7.2 per cent vis-a-vis 4.2 per cent in the September quarter of 2011.
| 2011-12 | 2010-11 | ||||||
|---|---|---|---|---|---|---|---|
| Description | Feb’11 | Feb’10 | YoY | Jan | QoQ | Apr-Feb | |
| Cement Production | 16.21 | 14.89 | 8.9 | 16.45 | -1.5 | 161.19 | 152.05 |
| Cement Dispatches | 16.29 | 14.83 | 9.8 | 16.25 | 0.2 | 160.23 | 151.01 |
The dispatch numbers for the period of April-February have grown by 6.1 per cent on a YoY basis, thus indicating lower growth in demand over the past 11 months. The lower growth was mainly due to subdued growth (3.9 per cent YoY) witnessed in the first six months of the fiscal. The first half of the fiscal year 2012 for the cement companies was quite challenging. A high interest rate regime by the RBI leading to a tighter liquidity situation hurt the investment cycle and the new capex plans of various infrastructure and construction companies.
However, from December onward the scenario started appearing more conducive for these players as the RBI’s cut of 50 bps indicated that the interest rate cycle had peaked out. We may not see any other rate hike going forward.
And what had been anticipated earlier came true when the RBI, on Friday March 9, reduced the CRR by 0.75 bps to 4.75 per cent. By reducing the CRR the RBI has infused liquidity into the system mainly to boost expenditure and investment in the economy. With this the infrastructure and construction companies will get more relief in raising funds for their new and ongoing projects.
Also, cement is a cyclical business and generally the second half of the fiscal remains better than the first half due to the monsoon and some lag effect post-monsoon. Keeping in view the above scenario we believe that going forward the cement companies will see good volume growth and a subsequent hike in the cement prices by Rs 10-15 per 50 kg bag. Both these factors will result in decent overall growth for the cement players in the coming quarter.
Budget Expectations
At present the industry is facing pressure on the input cost front. This is mainly on account of the cost of coal, which constitutes 50 per cent of the total cost of sale. Therefore we expect the government to reduce import duty on coal from 5 to 3 per cent. As there is a shortage of coal in India due to high consumption from power companies, only 40 per cent of the requirement is met through linkage. Also, due to low priority given to the industry for coal procurement, most companies opt for imports.
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