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Cement: Dispatches cheer - Views on News from Equitymaster
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  • Jul 11, 2002

    Cement: Dispatches cheer

    The new financial year has started well for most cement companies. Good housing demand remains the main driver for the sector. In the first quarter, ACC and Grasim have emerged as the front-runners as far as dispatches are concerned.

    Cement dispatches: Healthy trend
    YoY growth (%) April May June 1QFY03
    ACC 29.0 18.0 11.0 19.4
    Gujarat Ambuja 3.0 6.0 21.0 10.0
    L&T 12.6 1.8 7.0 7.2
    Grasim 25.0 6.4 5.4 12.3

    ACC has proven without doubt how focus on core operations and restructuring can go a long way in turning around the fortunes of a company. ACC, with its wide reach, has ensured that it is in a good position to cater to demand from various regions of the country. ACC has shown an average growth of 19.2% YoY in its 1QFY03 dispatches. Grasim, on the other hand, has reported a 12% YoY growth in cement dispatches while Gujarat Ambuja and L&T reported, a lower but respectable, 10% and 7.2% YoY growth.

    A closer look will reveal that ACC’s dispatch growth figures are skewed to a certain extent. The base for calculation of ACC’s dispatch numbers has been low, as in the same period last year the company was still grappling with operational issues. This has led to higher growth figures. Also, cement demand had not picked up until second half of FY02 allowing for the respectable dispatch numbers. In case of Gujarat Ambuja the low dispatch growth figures do not necessarily mean that dispatches have been poor, as it experienced the opposite effect of ACC.

    The dispatches in the first two months of the quarter for most of the major cement manufacturers have been good. The dispatches have however slackened in the month of June due to the onset of monsoons. Cement prices have however remained depressed over the first quarter of FY03. Cement demand is expected to pick up post monsoon. Recent reports also indicate that major manufacturers, once again, are expected to come together to restrict production in order to firm up prices.

    All in all the year has started well for cement producers across the country. The demand out look looks healthy with infrastructure projects acting as triggers. Post monsoon demand spurt coupled with production adjustments is likely to improve realisations for most cement producers. Considering the long-term prospects of the industry, cement companies with good business fundamentals and a strong focus on core operations are likely to repeat recent performances.



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