Surprise pickup in demand for December 2008 – will this continue...?
The cement dispatches in December 2008 were up by 12-14% on both yoy and mom. Interestingly the inventory levels for several companies/dealers fell sharply and are close to reach zero level for few plants. The change in scenario is due to pre-election spending by center and state Governments helped to boost demand. The several Govt projects like sewerage line project in Punjab; national irrigation project in Haryana and Andhra Pradesh; roads, bridges and other infrastructure projects in Gujarat; concretization of roads in Delhi; and off take for the Bangalore Metro in Karnataka. This is likely to be a pre-election demand and is to sustain at least till May 2009. Even the lower commodity prices boosted to start several infrastructure projects which seem to be profitable for developers.
EBIDTA Margins to sustain for next few quarters…
As of now retail cement prices have corrected by 10-12% but which had impacted on ex–factory by only 6-8% because, the Govt had cut the excise duty by 4% which benefited the manufacturers. If we assume further drop in realisation by 5% mean time reduction in coal prices and fuel cut helps to save cost by Rs 22 -25 per bag. This can improve company’s profitability in Q4 not in Q3. The coal prices started declining from November 2008; even the fuel price cut came in the month of December 2008. The more effect would be from Jan onwards, so Q4 could be better quarter for all cement companies compared to third quarter. So this could be better opportunity to get in to cement stocks for short term duration. We anticipate a sharp recovery in all Cement stocks in coming days…..
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