Cement Sector - HDFC Bank
July 17, 2014
Cement Sector
Sector Update
• Background: The cement stocks have been in focus since Feb 2014, due to the expectations of
strong demand led by delayed onset of monsoons and the government’s thrust on infrastructure
development in the economy. The slowing pace of capacity addition will also lead to improvement in
effective utilization rate of the industry offering improved pricing power to the cement manufactures.
We expect buoyancy in the cement stocks to continue even after the monsoon season, due to
revival in the demand from housing and infrastructure sector.
One year performance of cement stocks vi s-à-vi s Sensex:
Source: Capitali ne
• Slowing pace of capacity additions to improve the overall utilisation level: The cement
industry witnessed huge capacity expansion of ~159 million tonne (MT) post FY07. This was
largely lured by improving fundamentals of the cement industry as profitability of Indian cement
companies reached historically high levels in FY2007, when the average retail price increased by
26% YoY to Rs 207/bag against Rs 164/bag in FY06. RoE of cement companies reached 30%
levels then, incentivizing cement manufactures to increase their installed capacities and hoping to
ride on the infrastructure boom in the country. This huge expansion distorted the demand-supply
dynamics of the industry. Moreover, Indian cement industry has commissioned 243MT of new
capacities in the last 18 years, of which 159MT (~65%) were in the last 6 years. We expect the
pace of capacity addition to reduce gradually once the earlier announced capacities come on
stream as which will help overall cement industry to improve the utilisation level which has been in
the range of 65-70% over last several years.
Region-wise cement capacity addition:
Region FY14 FY15E FY16E
North 6.1 5.3 7.4
East 8.3 1.7 5.8
West 0 2.8 0
Central 5.4 6.5 0
South 4.4 0 3
Pan-India 24.2 16.3 16.2
Source: Industry, Companies
70.0
90.0
110.0
130.0
150.0
170.0
190.0
210.0
Jul‐13
Jul‐13
Aug‐13
Sep‐13
Sep‐13
Oct‐13
Nov‐13
Nov‐13
Dec‐13
Jan‐14
Jan‐14
Feb‐14
Mar‐14
Apr‐14
Apr‐14
May‐14
Jun‐14
Jun‐14
ACC BirlaCorp Ambuja Shree Ultratech S&PBSESensex
HDFC Bank Inve stment Advisory Grou p
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