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MOSL: CEMENT-Central region in a sweet spot; Prices likely to move northwards, led by utilization increase

CEMENT: Central region in a sweet spot; Prices likely to move northwards, led by utilization increase

 

• Demand in the central market has grown at a CAGR of only ~3% over FY12-18 due to slowdown in infrastructure activities and sand mining issues that affected Uttar Pradesh in 1HFY18. However, demand growth in 3QFY18 has been strong despite ramp-up of JPA’s acquired assets (utilization up from sub-30% in 1QFY18 to ~50% in 3QFY18).
• However, capacity has grown at a CAGR of ~6% over FY12-18, leading to drop in utilization levels, and hence, a marginal 2% price CAGR.
• We expect capacity addition in the region to slow down to 5% CAGR over FY18-20, with only ~6mt of new capacity coming up in FY19 and no meaningful capacity in FY20.
• With demand estimated to grow at 9% CAGR over FY18-20, led by pickup in infrastructure activities, improvement in rural income and lower per capita consumption, we see a utilization improvement of ~590bp over FY18-20.
• UTCEM’s acquisition of JPA’s asset has led to pricing segmentation in the central market, which bodes well for incumbent category-B players, as UTCEM has priced JPA in the category-A segment.