Key Sector Data Market Cap (Rs. cr) 312637 Market Cap (USD million) 44827.4 P/E        31.1 P/BV          3.3 Debt/Equity          0.5 ROA (%)          6.5 ROE (%)        10.5 EV/Sales          2.7 EV/EBITDA        15.0

Cement industry in the country is on ascent with steady rise in demand and improvement in capacity utilisation. The capacity utilization improved by 2-3% points in 2018 compared to 2017 despite additional capacity coming into stream during the year. Cement demand continues to remain strong, driven by infrastructure projects and low-cost housing.

Strong growth in demand is likely to be driven by a slew of infrastructure projects which have been announced by the government, among which are the construction of around 84,000 kilometers of roads by 2022 including the Bharatmala Project, construction of rural roads under the Pradhan Mantri Gram Sadak Yojana by 2019, Housing for All by 2022, the metro rail networks in several cities, bullet train and various irrigation projects. Regardless, the sector could face some headwinds in the form of higher fuel prices that could have a negative impact on margins.

All-India cement production (proxy for demand), as reported by the Office of Economic Advisor, Ministry of Commerce and Industry, increased by 9.5%yoy to 583.70 lakh tonnes in Jan-Feb period of FY 2019. India's cement industry saw a 13%yoy increase in volume to 3041.98 lakh tonnes in the first eleven months of the current fiscal, driven largely by rural and affordable housing. The growth was almost double the 6.3% increase in the FY2018.

For the March quarter, cement prices have increased in all regions. Prices gained 2% YoY on a pan-India basis (Rs 330/bag in Q4FY19 versus Rs 323/bag in Q4FY18). They gained momentum in southern and western regions, while the pace of increase was slow in other regions of India. In the South, cement prices have increased around 5%. In the East and West regions, prices have increased 1 percent sequentially.

On the back of higher volume with steady growth in demand and higher realisation due to price hike, the cement sector is expected to register strong revenue growth in Q4 of the fiscal ending March 2019 (FY 2019).

Cement Output up 8% in February 2019 & up 13% in Apr-Feb 2019

All-India cement production (proxy for demand), as reported by the Office of Economic Advisor, Ministry of Commerce and Industry, increased 8% to 285.11 lakh tonnes in February 2019 over a year but lower by 4.5% over January 2019. For April-February period of FY 2019, Cement production increased by 13% to 3041.98 lakh tonnes.

Cement production rose 6.3% to 2,977.11 lakh tonnes in the FY 2018 compared with 1.2% de-growth to 2799.75 lakh tonnes in the FY 2017.

Cement price up 7% in March 2019

All-India average cement prices have increased ~7% to Rs 312 per bag in March 2019, led by the southern and western regions. Cement prices in the southern region showed a steep rise of ~15% a bag and went up by ~16% a bag in the western region. Prices increased in the northern and central regions by ~4% a bag but declined by ~2% a bag in the eastern region.

The price hikes undertaken in the beginning of the month was completely rolled back in several pockets especially in the Southern and Western markets. Barring Western and Central regions, there has been marginal price contraction in all other regions in Mar'19 mainly due to higher volume push led by closing of financial year.

WPI of Ordinary Portland cement up 1.8% in February 2019

The Cement, Lime and Plaster Wholesale Price Index (WPI), with a weight of 1.644 in the WPI, inclined 1.4% to 116.9 in February 2019 over a year and up 2% over January 2019. For April-February period of FY 2019, Cement, Lime and Plaster WPI growth was up marginal 0.1% at 114. The Cement, Lime and Plaster WPI grew 2.9% in FY2018 compared with 0.6% growth in FY2017.

Meanwhile, the Ordinary Portland cement WPI, with a weight of 0.852 in the WPI, rose 1.8% at 115.2 in February 2019 over the year and up by 2.3% over the month. For April-February period of FY 2019, Ordinary Portland cement WPI grew 0.7%. The Ordinary Portland cement WPI grew 3.3% in FY2018 compared with 0.8% growth in the FY2017.

Outlook

Strong focus on infrastructure development especially development of roads & highways, urban infrastructure projects including mobility projects, Affordable Housing and Revival of Real Estate are likely to keep the demand for Cement Products high which coupled with ease of additional capacity creation will be positive for Cement Manufacturing companies.

India's cement sector growth is projected at around 8% in FY 2018-19, which is good as compared to the trends of the last few years. However, in the short term the cement demand is expected to have less momentum due to General Elections in May 2019 which slows down the ordering of projects as well as issuing appointed date for execution of projects already awarded. Moreover with most of the labourers in the cement and construction sector are migratory workers and go back to their villages in pre-election time. Thus, both infrastructure projects, as well as, individual house building gets affected.

Once the election is over and new government assumes charge as well as the monsoon season is over, the cement sector may see an improvement in prices with pick up in construction activity.