Go for cement cos with focus on South, West India

[Sukumar.N]

MUMBAI: A clear pattern is evident, if one goes by the results
declared by cement companies. Companies with a strong focus on
southern and western markets stand to gain and should be the stocks
investors should pick, say analysts. Results declared by Ultra Tech
and JK Lakshmi reflect just that.

Analysts point out that stocks with a distinct focus on southern and
western markets like India Cement, Madras Cements and ACC, could be
the preferred stocks for investors, given that price realisations are
still strong on a year-on-year basis in the September 2008 quarter. In
contrast, the northern and central markets have declined on a y-o-y
basis in Q2 FY 09.

India Cements and Madras Cements derive an overwhelming majority of
sales in southern markets, while ACC derives nearly 19 per cent of its
sales from southern markets and 13-14 % from western markets, say
analysts.

Ultra Tech, which is focused on southern (about 23 % of total
despatches), western (52% of despatches) and eastern (25% of
despatches) India, has grown its realisations on a y-o-y basis in the
September 2008 quarter, in a bid to partially offset rising input
costs, like imported coal. In contrast, JK Lakshmi, which is largely
focused on northern and central markets, saw a decline in its net
cement realisations in Q2 FY 09.

This comes at a time when the Cement Manufacturer's Association has
also highlighted that cement consumption in the markets of northern
and central India has a shown a marked slowdown between April-August.

In the case of Ultra Tech Cement, its combined cement and clinker
sales amounted to 3.98 million tonne in September 2008 quarter, a
growth of 13 per cent y-o-y. In the domestic market alone, the
company's cement sales were 3.23 million tonnes, a rise of 3 per cent
y-o-y in Q2 FY 09, with its net realisations at Rs 3,468 per tonne, a
rise of 7 per cent y-o-y. In addition, its blended realisations
(cement plus clinker) also rose 3.9 per cent y-o-y to Rs 3507 per
tonnes in the last tonne.

Nevertheless, the company has only been able to partially offset
higher input costs, like coal via higher prices realisations, as its
operating profit margins declined 660 basis points y-o-y to 22.4 per
cent in the September 2008 quarter.

Meanwhile, Ultra Tech has started commercial production of clinker
from its expansion at Andhra Pradesh and cement from the grinding unit
in Karnataka. The company highlighted that upon complete commissioning
of capacity at Andhra Pradesh, the company's total capacity will
increase to 23.1 million tonnes by the end of CY 08.

In the case of JK Lakshmi Cement, the company's total sales were 9.74
lakh tonnes in the September 2008 quarter, a rise of 12.1 per cent y-o-
y. However, its cement sales were 8.72 lakh tonne in Q2 FY 09, a rise
of 7.8 per cent y-o-y, with its blended realisations (cement plus
clinker) declining 2.2 per cent y-o-y to Rs 3011 per tonne, point out
analysts at domestic brokerage houses.


N.Sukumar
Research Analyst
www.kences1.blogspot.com

[ekamber]

I feel in such circumstances AP based companies like Andhra Cement,
Priya Cement, Kakatiya Cements etc., shall also do well

ekamber