Cement

23/ aug NEW DELHI: Sajjan Jindal-led JSW Group today said its "multi-locational" Rs 1,900-crore cement plant with an annual production capacity of 5 million tonnes will come up by the end of next financial year. "The 5 million tonnes plant will come become operational in next 18 months," JSW Group CFO Seshagiri Rao told PTI in an interview. The proposed cement unit will come up in two states -- Karnataka and Andhra Pradesh. JSW Cement, a group subsidiary, which is undertaking the project, has already tied up Rs 1,500 crore debt for the venture, he said, adding, the rest will be provided by the group. The company will use two vital raw materials for making cement -- slag and fly ash -- from its steel business. While slag is a byproduct of process of making steel, fly ash comes out from burning coal. The company already has a three-lakh tonne captive cement plant at Vijaynagar in Karnataka.

"The cement plant will partly come at Nandiyar in Andhra Pradesh. There we are setting up clinker plant. We are setting up a grinding unit at Vijaynagar," Rao added. JSW Group is aiming to tap the Southern India cement market with the commercial foray, he said. The market is presently dominated by the likes of India Cements and Dalmia Cement. 19/aug

NEW DELHI: The cement industry that saw rural demand driving its impressive 12% growth last fiscal does not foresee any significant impact of a weak monsoon on demand. They believe that a higher government infrastructure spend and an improving housing market in metros may offset any fall in rural demand because of a weak monsoon. Analysts though believe that a weak rural demand coupled with new cement capacities may put pressure on prices. “The second half of this fiscal may see rural demand for cement getting impacted partly because of lower disposable income at the hands of farmers due to a poor monsoon,” said Jaiprakash Associates CFO Rahul Kumar. Jaiprakash Associates, which has an installed capacity of 14 million tonne a year, mainly operates in Madhya Pradesh, Uttar Pradesh and Bihar. Mr Kumar said impact on rural demand for cement could be higher in Bihar and eastern UP, where dependence on rain for

farming is higher compared with Haryana or Punjab, where irrigation facilities are wellspread. However, he hopes that a shortfall in demand caused by a weak monsoon may get offset by the government projects and improvement in the housing market. The cement sector has seen a robust growth in the past several quarters. As per data published by the Cement Manufacturers Association (CMA), the production and despatches grew 12% and 11.7%, respectively, in the four months to July this fiscal. Last fiscal saw an unusually impressive growth of 12% for the cement sector, despite GDP growth slowing to 6.7% on higher government infrastructure spend and rural demand. CMA president and Shree Cement MD HM Bangur said on a long-term average basis, cement has grown 1.3 times the GDP growth numbers. So, if GDP were to grow by 7%, the industry can safely be assumed to grow by over 9%. A weak monsoon may impact cement growth by hardly 1-2 percentage points this year, he added. The cement industry has a total installed capacity of 227 mt a year, including 8 mt added in the four months to July. the industry expects to add another 20 mt this fiscal. “An oversupply in several regions coupled with lower household income in rural areas will put pressure on prices,” said Rupesh Sankhe, a cement analyst with Centrum Broking. South India’s largest cement maker India Cement, however, doesn’t agree. “We will have to wait and see how prices move in future,” said India Cement MD N Srinivasan, adding that analysts have been proved wrong several times on predicting oversupply. He also believes that a weak monsoon will not erode demand as most households have multiple sources of income. However, Mr Srinivasan is cautious on the impact of inflation. “If the government were to divert funds meant for infrastructure expenditure towards giving food subsidy to poor people, infrastructure spend will come down leading to lower demand for cement,” he said. 19/08/2009 EW DELHI: Iron ore mining firm Rungta Mines (RML), the flagship company of SR Rungta group, plans to set up a one-million-tonne cement plant in Orissa with an investment of around Rs 600 crore, a top company executive said. The move, proposed to be funded through a mix of debt and internal accruals, would diversify the business of the group beyond mining and steel production. “The cement project is currently in the evaluation stage and, if finalised, will be established in Orissa,” said Siddharth Rungta, president of privately-held Rungta Mines. He added in the short term, the company would continue to focus on mining and steel business. RML is in talks with the state government for allocation of limestone reserves to execute the cement project. Limestone is a key input in cement and every tonne of cement making

requires 1.5 tonne of the raw material. The company is also in the process of setting up two steel plants, one each in Orissa and Jharkhand. The annual steel producing capacity of plants in Orissa and Jharkhand will be 2million tonne and 0.5-million tonne, respectively. Besides, both locations will have a 40-mw captive power plant. “Production of sponge iron has partially begun at both locations, which will be used to make long steel products. We expect both plants to become fully operational in the next 3-4 years,” Mr Rungta said. Long steel products are mainly used for construction. 11/08/2009

THIRUVANANTHAPURAM: Cement major JK Cement, which has a presence in both grey and white cement segments, is expecting to commission its grey cement plant at Bagalkot, north Karnataka within the next few months, and expand operations to more locations. The Karnataka plant is being undertaken through the company's subsidiary, Jaykaycem. JK Cement president for technical and management services, MP Rawal told ET that the company had already begun prospecting for limestone deposits in Orissa, and Uttaranchal and that the company was looking to expand outside of its home base, Rajasthan. JK Cement has four units in Rajasthan, three of which are grey cement units, with an aggregate capacity of 5.2 million tones per annum, and the upcoming greenfield unit in Karnataka has a capacity of 3.5 million tones. Mr Rawal said the company had not been hit by the economic slowdown in any significant manner and that prospecting for new raw material deposits was going on in right earnest. "We are prospecting in Orissa both because of the mineral deposits there as well as with the objective of breaking into newer areas. There is a crowding of cement units in the north-west and central regions of the country, which has prompted us to look at the eastern part of the country", Mr Rawal said. The company is expected to take a call on its next unit after the new unit in Karnataka stabilizes. Mr Rawal said that contrary to the general feeling that the construction sector had been badly hit by the economic slowdown, the company's experience was that there was no major adverse impact in sales. He said the reason could be attributed to the fact that in the domestic market, the number of major builders in the country whose projects had been hit were only a few, while the large majority of construction in the country was still done by smaller operators. "Domestic construction aimed at domestic consumption and independent of the demand

created by the new-gen buyers has not been affected", he said. He said the company's exports were also not affected because its export destinations are primarily in Asia, where the impact of slowdown was considerably less. JK Cement also exports to the UAE, where builders whose projects are more than half done continue to be buyers since they need to complete their projects, Mr Rawal said. 3/08/09

CHENNAI: India Cements, in July 09, despatched a record 10.2 lakh tonnes of cement and clinker, recording a growth of 19% over the 8.6 lakh tonnes it despatched in July 08. In June 09, the company’s despatch stood at 8.23 lakh tonne compared to 8.27 lakh tonnes in the same month last year. Usually, industry growth YoY on cement despatches is 5-6% in the south. "India Cements could achieve this milestone following the commissioning of various expansion plans taken up to increase its capacity in the first phase from 9 million tonnes to 14 Million tonnes," company said in a statement on Monday. "With the stabilisation of expanded capacities and improvement in logistics, the company expects to improve the volume in the coming months." India Cements’ VP- marketing, Rakesh Singh, clinker has been a unique source of growth this time. "We have had some additional demand for clinker from the eastern region apart from our existing customers in the south. We don’t usually find clinker occupying a significant part of our despatch," he said. The share of clinker in the company’s overall despatch has grown from 2-3% to 8-9% YoY. Geographically, Tamil Nadu and Kerala have been the major growth drivers, growing at 1012% themselves. The company also increased its supply to Maharshtra to 1 lakh tonnes besides to north. "There was always demand for all the cement that we produce and our capacity addition this year has led to a growth in our despatch," Mr.Singh said. The company has added 10 lakh tonnes at the Andhra Pradesh based plant of Visaka Cements, 12 lakh tonnes each at Chennai and Parli in Maharashtra, and 6 lakh tonnes each at Vishnupuram and Sankari. 3/8/9

MUMBAI: Cement major, Ambuja Cements, on Monday said that its production for the month of July stood at to 14.39-lakh tonnes as against 13.95-lakh tonnes in the year-ago period. Its despatches rose to 14.38-lakh tonnes as comapred to 13.76-lakh tonnes in the corresponding period of the previous fiscal, a press release issued here said. For the January-July 2009 period, the cement company's production stood at 112.91-lakh tonnes as against 106.17-lakh tonnes in the year-ago period. Its despatches stood at 113.02-lakh tonnes as against 105.87-lakh tonnes, the release said.

1/8/9

GUWAHATI: Jaiprakash Associates Ltd (JAL), the flagship company of the diversified industrial conglomerate Jaypee Group, has inked a MoU with state-owned Assam Mineral Development Corporation Limited (AMDC) for setting up a 2 million tonnes per annum capacity cement plant. This joint venture project will come up in Umrangshu in North Cachar hills. The total project cost for setting up this plant is estimated to be Rs 1050 crore. According to press statement issued by the company, the bids for setting up the cement plant were invited by Government of Assam in June 2007 and 23 companies participated in the bid. After opening of the bid in August 2007, Jaiprakash Associates Limited was declared the successful bidder by offering highest amount of facilitation fee and free equity to AMDC. The MoU was signed by Manoj Gaur, Executive Chairman, Jaiprakash Associates Ltd and J P Baruah, Managing Director Assam Mineral Development Corporation Limited in a function at Guwahati in presence of Tarun Gogoi, Chief Minister Assam on Friday. The statement stated that the joint venture company, to be incorporated shortly. The project during construction phase will offer employment to 3000 persons and after completion direct employment to 1500 persons and cascading employment to over 10,000 persons. 30/7/2009 KOLKATA: B K Birla group company Mangalam Cement on Thursday said it is setting up a 1.5 million tonne per annum cement manufacturing unit at Adityanagar in Rajasthan. The proposed Rs 750 crore venture also entails setting up of a captive 17.5 mw thermal power plant within the same premises. The project, which will come up adjacent to the company's existing Rajasthan unit, will be financed by internal cash accruals of Rs 300 crore as well as by long term loan and debt instrument of approximately of Rs 450 crore. Completion of the proposed unit will enhance the company's cement manufacturing capacity to 3.5 million tonne per annum. Company sources claim the board of directors, which met in Kolkata on Thursday, has given its in principle approval to the expansion plan. The board also approved induction of B K Birla's granddaughter Vidula Jalan and her husband, Anshuman Vikram Jalan as additional directors "in sync with group patriarch Basant Kumar Birla's decision to hand over the reins of Mangalam Cement and Mangalam Timber to his granddaughter and her husband," the source added. The board also approved the company's unaudited financial results for the quarter ended June 30, 2009. The company reported a 75.61 % rise in net profit at Rs 33.70 crore for the first-

quarter (Q1) ended June 30, 2009, compared to a Rs 19.19 crore net in the earlier corresponding period. The higher Q1 profit follows a 24.51 % growth in Mangalam Cement's April-June quarter gross sales revenue at Rs 171.36 crore (Rs 137.62 crore). While net sales for the quarter under review registered a near 32.04 % growth at Rs 154.91 crore, other operating income in the said quarter stood at Rs 16.94 lakh. Interest and financial charges during Q1 dipped to Rs 51.63 lakh (Rs 1.02 crore) while depreciation & amortisation cost was marginally higher at Rs 6.30 crore (Rs 5.45 crore). A stretcher case under the provisions of SICA 1985, Mangalam Cement came out of the BIFR ambit sometime ago and has turned around reporting a profit from ordinary activities before tax of Rs 52.05 crore in the said quarter against Rs 26.81 crore in the corresponding previous quarter.

Cement industry Total production The cement industry comprises of 125 large cement plants with an installed capacity of 148.28 million tonnes and more than 300 mini cement plants with an estimated capacity of 11.10 million tonnes per annum. The Cement Corporation of India, which is a Central Public Sector Undertaking, has 10 units. There are 10 large cement plants owned by various State Governments. The total installed capacity in the country as a whole is 159.38 million tonnes. Actual cement production in 2002-03 was 116.35 million tonnes as against a production of 106.90 million tonnes in 200102, registering a growth rate of 8.84%. Major players in cement production are Ambuja cement, Aditya Cement, J K Cement and L & T cement. Apart from meeting the entire domestic demand, the industry is also exporting cement and clinker. The export of cement during 2001-02 and 2003-04 was 5.14 million tonnes and 6.92 million tonnes respectively. Export during April-May, 2003 was 1.35 million tonnes. Major exporters were Gujarat Ambuja Cements Ltd. and L&T Ltd. The Planning Commission for the formulation of X Five Year Plan constituted a 'Working Group on Cement Industry' for the development of cement industry. The Working Group has identified following thrust areas for improving demand for cement; i. Further push to housing development programmes; ii. Promotion of concrete Highways and roads; and iii. Use of ready-mix concrete in large infrastructure projects. Further, in order to improve global competitiveness of the Indian Cement Industry, the Department of Industrial Policy & Promotion commissioned a study on the global competitiveness of the Indian Industry through an organization of international repute, viz. KPMG Consultancy Pvt. Ltd. The report submitted by the organization has made several recommendations for making the Indian Cement Industry more competitive in the international market. The recommendations are under consideration.

Cement industry has been decontrolled from price and distribution on 1st March 1989 and de-licensed on 25th July 1991. However, the performance of the industry and prices of cement are monitored regularly. Being a key infrastructure industry, the constraints faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary (Coordination). The Committee on Infrastructure also reviews its performance. Technological change Continuous technological upgrading and assimilation of latest technology has been going on in the cement industry. Presently 93 per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only 7 per cent of the capacity is based on old wet and semi-dry process technology. There is tremendous scope for waste heat recovery in cement plants and thereby reduction in emission level. One project for cogeneration of power utilizing waste heat in an Indian cement plant is being implemented with Japanese assistance under Green Aid Plan. The induction of advanced technology has helped the industry immensely to conserve energy and fuel and to save materials substantially. India is also producing different varieties of cement like Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement etc. Production of these varieties of cement conform to the BIS Specifications. Also, some cement plants have set up dedicated jetties for promoting bulk transportation and export.

8/4/2009

In addition with prices of cement going up in the recent past indicating higher cement demand, it is but natural that the demand for steel should also firm up.

29/05/2009

Focus Sectors Strong Rollovers: Sugar (84%), Pharma (80%) and Cement (80%)

7/07/2009 In Union Budget 2009-10, government has emphasized on spending on the rural economy. Increase in spending in various schemes like Bharat Nirman, Rashtriya Krishi Vikas Yojna, Pradhan Mantri Gram Sadak Yojna will give enough money in the hands of rural economy. •

Sectors which will be benefited from the rural demand are Cement and FMCG.

•

Increase in Budget allocation to NREGA schemes by 44% to INR 311 bn

•

Various rural schemes like Gramin Vikas Yojna, etc will lead to increased spending by the rural population

•

Stocks to look for Long are HLL, ITC. Capital Goods •

Lower than expected spend on the infra. Allocation for infrastructure spending in Budget 2009-10 is much below expectation (~ 374 bn), leading to concern over order book visibility.

•

Valuation Expensive. In past few months, stocks have run up based on higher order book expectation. However looking at the macroeconomic indicators, and lower order visibility, stocks looks far ahead of the fundamentals. Stocks to look for short are LNT, ABB and SIEMENS.

Company

P/E

P/B

EV/EBITDA

FY10E

FY11E

FY10E

FY11E

FY10E

FY11E

Siemens

23.5

21.9

4.8

3.9

13.4

11.3

LT

26.3

22.2

5.4

4.6

19.5

15.9

Thermax

17.4

15.7

4.2

3.5

11.2

9.3

ABB

26.4

22.4

5.0

4.2

17.4

15.1

16/7/2009 Dear All,

Buy Grasim at CMP INR 2570 Tgt 2900 SL 2425 Grasim has reported better than expected dispatches (~12% growth in Q1FY10) and moderation in costs. Given this the benefits should directly accrue to EBIDTA. •

Company has registered continuous higher dispatches. In the month of June dispatches have increased by around 27%, Y-o-Y, highest amongst peers.

•

Company to accrue significant benefits as large capacity coming on line in the Northern region. This would be positive as: Demand strong in Delhi(9% of North), UP (16% of North) and Rajasthan given the

o

spending on infrastructure. 

Commonwealth related projects.



Uptake in rural segment especially in UP and Rajasthan. Both Govt have announced major projects in low cost housing as well as hospitals and other infrastructure schemes for rural areas.

•

Company is likely to witness margin expansion (27.7%) on account of reduction of coal cost (67% from its peak in July, Grasim imports 35 % of its coal requirement), increased sourcing of power from captive power plant.

•

Possibility of Merger with Ultratech to remain positive for the company.

•

VSF Business is expected to do well, based on higher volumes and reduction in raw material costs. Raw materials like sulphur and pulp have witnessed price decline, sulphur is down by 93% from its peak in Sept 2008 and pulp has reported a decline of 28% since 2QFY09.

Valuation.

Company

P/E

P/B

EV/EBITDA

EVTonne

FY10E

FY11E

FY10E

FY11E

FY10E

FY11E

FY10E

FY11E

Grasim

11.5

12.1

1.8

1.6

5.9

5.8

115

111

ACC

15.7

15.5

2.4

2.1

8.8

7.3

120

114

Ambuja Cement

15.8

13.8

2.2

1.9

8.2

6.0

123

116

9.6

12.5

2.0

1.8

5.5

6.3

93

87

Ultra Tech

Source: Bloomberg

22/07/2009 Dear All, Hold positions and Trail Stop Loss to INR 2685.7 Regards, Cash Equity Group

24/07/2009

Dear All, Book Full profits at CMP INR 2807.5 (Returns 9.2%) Regards, Cash Equity Group

28/07/2009 5.

Cement. Decrease in raw material prices, delay in fresh capacity coming on line and rural and tier II demand would continue to support prices. North based cement plants like Shree cement, and Grasim look good. In addition mid caps could be attractive buys. Significant picks would be JK Lakshmi cement, Prism, Kesoram. Company Name

EV/ EBIDTA Fy10E

FY11E

Grasim

7.5

7.9

Shree Cement

5.4

5.8

6.02

P/E Fy10E

EV/ Tonne (USD) FY11E

Fy10E

FY11E

13.1

122

118

9.6

10.2

100.9

94

6.03

6.4

6.7

110.9

110.8

-

-

-

-

49.5

49.5

2.8

3.4

5.8

8.0

12.4

Kesoram ind JK Lakshmi Cement Prism Cement

10/08/2009 Asia Ex Japan is trading 2 times Book and there are a few factors at play, which are particularly making it difficult for the region to breakout , until and unless the markets meaningfully pull-back a bit. The collapse of discretionary spending in the developed world , a momentary slowdown in Flows and more importantly, the speed and scale of the market rise is starting to concern many as valuations have risen too much too fast. This is the prime reason why most Asian markets are seeing a retracement. The Indian market is ironically, contradicting itself. The top-down picture appears to be quite convincingly on a strong wicket with the recent Earnings season surprising the street positively and the fact that the domestic consumption story is well on track. But if you flip it around, the bottom-up picture is quite different and it seems that there is very little value in most large-cap stocks. Therefore, fundamentally, we seem to have hit the high end of the valuations and mirroring this, the foreign flows have been weak lately. My read at this juncture is that the risk-appetite has fallen and therefore the market sentiment needs a bit of repair and a resumption of strong foreign flows before the market could get further ahead.

On the Flows front, it might surprise many but China which was the consensus overweight at Asian funds prior to the March rally but now it is one of their most-underweight markets. Hong Kong, being the laggard in this market recovery, is now the most overweight market as far as Asian fund flows are concerned. In sum, Hong Kong and Singapore remain well owned by Asian funds, while Korea , China and Taiwan are the biggest underweight positions.

Taking cues from the F&O data, we can expect the Nifty to trade in the 4300-4700 range. Positive buzz around encouraging US data and upgrade of India from equal weight to Overweight by JP Morgan could be the near-term positives on one hand but on the other we have the monsoon overhang and the possible S&P downgrade which could dampen the sentiment. On balance, this week could possibly throw opportunities to pick stocks but I would be a very cautious investor and buy only into defensive counters. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Unitech: The shift in developers’ focus towards affordable housing represents the transformation of residential real estate segment into a largely volume-led play. While such strategy augurs well for near-term cashflow generation & enlargement of addressable market, we note that land-bank valuation is typically more sensitive to pricing than to volume. In our analysts view, recent aggressive price-cuts mark a step towards ‘commoditisation’ of organised real estate, which is likely to dilute land-bank valuation, unless prices rise sharply soon. Given that recent uptick in transaction levels was prompted by severe price-cuts, they believe steep price-hike is likely to be some time away. Our Ana;ysts project Unitech’s FY10E and FY11E sales volume at 15mn sq ft each, premised on management’s guidance of 30mn sq ft of launch & 20mn sq ft of sales bookings in FY10E. This compares with volume of c.10mn, 7mn & 3mn in FY07, FY08 & FY09 respectively. In the current fiscal, Unitech has already launched 17mn sq ft & sold 7mn of the same. Unitech has created a new brand ‘Uni Homes’ to target the affordable housing segment (price range of Rs1-3mn per unit), with 10mn sq ft of launch across 8 cities planned in the first phase. In our analyst view, execution on such large scale could prove to be an onerous task. Our analysts build in an average price of Rs2,580 per sq ft in FY10E for Unitech’s ‘mid-income’ housing. Thus our analysts have arrived at NAV-based target price at Rs73 based on the above, using 13.8% cost of capital and cap rates of 11% for office & 12.5% for retail, including value of Unitech’s stake in the telecom venture at Rs9. BHEL has decided to airlift some of the critical equipment from different countries for two NTPC projects which are critical for meeting the electricity demand during the common wealth games 2010.NTPC is setting up a 1500mw greenfield thermal power project at jhajjar and 1000mw expansion project at Dadri . Base Metals: The China government announced on Friday a decline in loan growth, which will be a bearish price driver. Traders in China presently resort to taking profits as they anticipated fewer projects rolling out in China, thereby signaling reduction in demand for base metals. Therefore although the base metal complex has become the best performing sector so far in 2009, possibility for a sustainable rally is questionable in the short run. One should now wait for the trade data by the Chinese Customs for July, scheduled on August 11 because there are expectations that a drop in net import should trigger sell off in copper and other base metal prices. Therefore existing tone remains bearish in metals for the day. Crude Oil: The inventory report by US Energy Department is offering a mixed picture in the energy market. Crude oil inventory rose for the second week due to decline in refinery runs. We now perceive that supply of crude is

likely to remain robust in coming weeks owing to poor buying interest in oil products and the start of maintenance season will keep refinery low. Prices are most likely to find it difficult to break the 74-75 barriers comfortably. Sugar: The stocks of sugar companies on the BSE were in great demand on Thursday as investors expected the retail sugar prices to gain further on the back of a five-million -tonne gap between production and demand in the sugar season starting October. Sugar production has been pegged at 16-17 million tonnes in 2009-10 against 26.4 MT last year. The annual demand is about 22.5 MT. The possibility of imports making good the shortfall in production also turned bleak as the international sugar prices started shooting up. Monsoons: India's monsoon rains were barely a third of normal in the past 8-10 days, dipping for the second straight week at a crucial period for oilseeds and sugarcane, and raising concerns of rising food prices. As per MET department last fortnight's rainfall stood 64 percent blow normal, was the worst since mid-June, while total rainfall since the start of season on June 1 was a quarter below average. It should also be noted that rains were below normal for major grain producing states like Uttar Pradesh, Bihar, Punjab and Haryana even in July 2009. Stock specific strategy for the week: Avoid buying commodity related stocks, except sugar in cash during early part of the week. Rather, trades can be executed in futures & Options segment. In sugar scrips, strong support levels should be another oppurtunity for fresh investments as buyers. Regards Commodity Research