Volume growth has remained fairly strong for companies in Q1FY10 due to strong demand as well as commissioning of new supplies from several players. However, on a sequential basis, dispatches declined due to higher base of Q4FY09.
Northern region has also witnessed a strong volume growth in the current quarter primarily due to strong construction activity as well as spending due to Commonwealth Games.
Dispatch growth in Southern region has witnessed moderation due to lower demand from real estate sector.
Cement prices have remained firm in April, 2009 while witnessed correction in few places in the month of June, 2009 after witnessing strong improvement in Q4FY09.
We expect cement prices to start witnessing pressure due to the monsoon season as well as incremental supplies.
Power and fuel costs for the companies are likely to witness further correction since the full impact of decline in imported coal prices would start reflecting from the current quarter.
Ultratech Cements and India Cements are expected to be the key beneficiaries of decline in the imported coal prices. This would aid in keeping operating margins strong for the current quarter.
However, we believe that going forward dispatch growth is likely to be impacted by monsoons.
Cement realizations are also expected to witness pressure due to monsoons as well as upcoming supplies.
We thus continue to maintain our cautious stance on the cement sector due to expected pressure on cement realizations as well as decline in profitability going forward.