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Summary
of Contents
SHAREKHAN SECTOR SPECIAL
Cement producers on a capex
binge
Encouraged by the unabated growth in
cement consumption and the resultant upsurge in cement prices,
cement producers across the country have announced big capacity
expansion plans. The total capacity being added, based on the
announcements made till August 2006, is a huge 73.8 million tonne.
However the total gestation period for these projects is also fairly
long with the last tonne of addition coming up in the first half of
FY2010. The exhibit below presents the capacity addition
plans.
Even though the cement producers have announced
big capacity addition plans, the high gestation period for these
projects would mean that the capacity utilisation levels would be
comfortably placed at least till the end of FY2008. This in turn is
likely to maintain the firm trend of the cement prices. Hence the
cement companies are expected to report an impressive performance
both operationally and financially at least for next six to seven
quarters. Overall, we believe the southern region is best placed. It
has seen a continuous surge in cement consumption. For example, for
the first three months of the current fiscal, cement consumption in
the region grew by almost 21%. This was on the back of a very
impressive 24.9% growth witnessed in FY2006. Hence we like the
stocks that are either dominant in the southern region or have a
higher exposure to the markets there. We rate Associated Cement
Companies (ACC), UltraTech Cement Company Ltd (UTCL) and Madras
Cement as our top picks in the sector. We also like Orient Paper and
JK Cement on account of their compelling valuations, which are much
lower than the sector average.
STOCK UPDATE
Mahindra &
Mahindra
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs700
Current
market price: Rs651
Gains from value
unlocking
Mahindra and Mahindra (M&M) is in the
process of unlocking value in its subsidiaries. In February 2006
M&M divested its stake in Mahindra and Mahindra Financial
Services (MMFSL) and now with the Tech Mahindra initial public
offering (IPO), its stake in this subsidiary is also being valued by
the public.
These divestments are in line with the
company's policy of promoting investments in appropriate businesses
and monetising the same at an opportune moment for creating wealth
for the company's shareholders.
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