Jun 30, 2000|
There has been a recent flurry of activity in the cement sector. Although the M&A activity has cooled off, restructuring is in full swing. And now, just as the monsoons cover the country, comes the news of rising in cement prices.
First, a short recap. After having posted a fantastic 15% YoY growth in FY00, cement demand tapered off sharply. This was largely due to the year on year factor (last year's base was higher) and a drought in several parts of the country. The drought hit the sector in terms of realisations even as volumes remained stagnant at previous year's level.
In the past few days, however, positive news has once again started to flow in from the sector. First was the arrival of the monsoon, which is largely anticipated to be 'normal'. Thus the fear that there will be little water for construction activity in the coming year has been put to rest. Next was the news that cement manufacturer's had effected a price hike in Bombay, which is a very large market. Similarly, prices in the South have begun to firm up. The eastern market has however remained firm throughout this period. The northern market however is the only weak spot.
Finally, the announcement that L&T, one of India's largest conglomerates, is meeting to consider hiving off its cement division (it has oft deferred this issue) has rejuvenated interest in the sector. During the last couple of years consolidation in the sector has accelerated. By some estimates 25% of India's cement capacity has already changed hands. This has reduced the degree of fragmentation, which often leads to unhealthy price competition, in the sector to a large extent.
All these developments increase the attractiveness of the sector from the point of view of valuations, especially when you consider that there is enormous demand for cement. On top of that is the possibility of a supply deficit in coming years.
But timing of an investment is a key issue. And with the monsoon having arrived demand for cement would remain sluggish over the next three to four months. This also puts in doubt the possibility of manufacturer's being able to sustain the price hike in coming months. Therefore unless a clear price trend is evident it would be wise to wait for one to emerge.
The one key development that could lead to a sudden dramatic change in valuations will be a rise in M&A activity. Already several deals are said to be on the board (involving the Birla group for one). Once they hit the market, buying interest may emerge in the sector. But nevertheless for the fundamentals to improve, one will have to wait for the monsoon to pass and a price trend to establish.
More Views on News
Aug 11, 2017
UltraTech Cement completed the acquisition of cement plants of Jaiprakash Associates Limited (JAL) and Jaypee Cement Corporation Limited (JCCL) during the quarter ended June 2017.
Aug 11, 2017
While topline witnessed growth on the back of higher cement sale volumes, a 50.5% YoY fall in other income weighed on Ambuja's bottomline during the quarter ending June 2017.
Jul 20, 2017
Expanded capacity helped ACC strengthen its market presence in eastern region during the quarter ended June 2017.
May 18, 2017
Cement demand was weak because of subdued housing demand, volatile cement prices, and rising fuel costs.
May 8, 2017
Stock price jumps up on Ambuja-ACC merger talks...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407