Cement : Volume growth of cement sector slowed down marginally in July`09: Sharekhan

While commenting on the volume growth of the cement sector for the month of July 2009, leading brokerage house Sharekhan said, “Cement dispatches for July 2009 grew to 15.9 million metric ton (MMT), indicating an increase of 9.9% year on year (yoy).“

The brokerage house marked that the absence of ACC`s volume dispatch data in calculating the growth figures. It however noted that on a like-to-like basis (adjusting for the previous year`s volumes of ACC), the dispatches grew by 10.7% during the month and the performance was in line with the growth of ~12% seen in the previous three months.

According to the brokerage house, barring the western region, all the regions posted an impressive volume growth for the month. Among the regions, the central region witnessed the highest volume growth of 22.2% in the month. The northern and eastern regions also posted a robust growth of 19% and 13% respectively. However, the western region registered a poor performance as its volume declined by 8.9%.

Among the cement companies under the brokerage houses coverage, Shree Cement continued to lead the industry with a 42.6% growth in its volumes yoy to 0.8MMT in July 2009. Grasim Industries and Madras Cement also registered impressive volume growth of 16% yoy and 30.9% yoy respectively. Top cement makers saw a mixed volume growth during the month. On the other hand, companies like Orient Paper and Industries posted a negative volume growth of 17% in the same month.

Going further, the brokerage house pointed out that in July, cement prices remained stable in most of the major cities whereas in August the prices declined across the country by Rs 4-5 a bag of 50 kg on an average. Among the regions, the highest correction in the price was noticed in the major cities of the southern region (of around Rs 10 a bag). As per the recent update, prices in Chennai and Hyderabad fell by Rs 10 a bag and those in Mumbai and Delhi dropped by Rs 3 a bag.

According to dealers, cement prices are likely to come under more pressure in the coming 15 to 20 days and may come down by Rs 4-5 a bag, the brokerage house said.

However, the brokerage house has raised concerns about the recent cost inflation in terms of the expected increase in the price of raw materials (due to the increase in the limestone royalty payment) and the expected increase in the price of domestic coal. This, according to it could put pressure on the margins in the coming quarters. It also feels that the clubbing of new capacities in the second half would also put pressure on the realisations.

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