The country’s cement dispatches grew by 10.3% year on year (y-o-y) to 18.1 million metric tonne (MMT) in March 2009.
The cumulative dispatches from April to March 2009 (FY2009) grew by 8.5% to 181MMT.
The growth for the month under review was achieved mainly on the back of the strong demand from the government infrastructure projects ahead of the general election and personal housing construction at rural and semi urban areas.
Though the macro head winds remain, in terms of the slowdown in the urban real estate sector and the overall slowdown in the economy, the revival in the volume growth since the last two quarters has created positive sentiment for the sector.
Moreover, the recent price hike (Rs15-20 per bag) announced by the cement companies in the last two months coupled with the moderation of cost in terms of softening crude oil, coal and packaging prices might give positive surprises on the margin front in the coming two quarters (Q4FY2009 and Q1FY2010).
However, the above positives are already factored in the valuation of cement stocks. The cement stocks have surged in the past four-five months and have outperformed the broader market, which is in line with our positive view on the sector.
We believe the recent rally in the cement stocks leaves limited upside from the current level.
The anticipated slowdown in the government projects post election, continued slowdown in the urban real estate sector and upcoming capacity (52 MMT by the end of FY2010) are likely to put pressure on the realisation in FY2010.
Hence, we recommend investors to at least book partial profit in the cement stocks.