Wikinvest Wire

Cement Sector

Subdued outlook but value emerges

Due to a slowdown in construction and real estate sectors backed by a slowdown in economy and substantial addition of fresh cement capacities over the next four to six quarters, we expect cement volume growth to slow down considerably from the earlier expectations of around 8-8.5% compounded annual growth rate over FY2008-10. As a result of a slower growth rate the utilisation rate of cement companies is expected to decline and the average realisation is anticipated to soften going forward. This will outweigh any let-down in cost pressures due to recent correction in the prices of coal, oil and other basic raw materials. Thus, the pressure on the margins of cement companies is likely to extenuate further in the coming quarters.

Though the cement companies will have tough six to eight quarters before the situation begins to improve, the negatives are largely factored in the valuations with most companies trading at 30-70% below their replacement cost. Moreover, the healthy balance sheets with low gearing makes the cement companies better placed to weather the present downswing as compared with previous downcycle.
Cement Sector Cement Sector Reviewed by admin on 5:51:00 PM Rating: 5
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