IIP data reported encouraging 16.5% YoY growth in cement production in July 2014 (the highest-ever since November 2011). YTDFY15 production growth stood at 11.2% YoY and TTM growth bounced up to 6.1% versus a low of 3.3% in March 2014, according to Motilal Oswal Securities.
''Recent channel interactions highlight sequential demand moderation in August as the impact of monsoon was overshadowing, with broad expectations of a subdued monsoon. Post a strong resilience in July 2014, due to delayed monsoon, prices plunged Rs 10-20/bag across regions in August (albeit up 8.7% YoY),'' it said.
Price decline in western regions (ex-Mumbai) was high at Rs 20-30/bag but there was a sharp rise in June-July too. Prices in southern states declined by upto Rs 15/bag.
''Commencement of ABG plant (3mt) by 3QFY15 and Nirma (March 2015) are being seen as a threat to cement pricing by Gujarat and Rajasthan dealers. Strength in demand in FY15YTD with 11% growth, leads upgrade in our industry volume growth estimate to 10% each inFY15-17 (v/s 6%/8%/10% earlier),'' said Motilal Oswal Securities.
''Demand recovery has being faster and higher than expected. This coupled with slowing capacity addition and higher capex and opex cost would support cement prices and profitability going forward. Sustained recovery in demand would act as catalyst stock performance. Any government intervention in cement pricing poses threat to our positive view,'' it said.
''In large-caps we prefer ACC, UltraTech and Shree Cement, whereas in mid-caps we prefer Dalmia Bharat, JK Cement and JK Lakshmi Cement,'' it opined.
