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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.
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