Cement & Automobile Sector Report

By Author: Vamsi Krishna
Total Articles: 27
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India is the second largest cement producer in the world after China, with an installed capacity of 302 million tonnes (MT) in FY12. India's domestic consumption is 221 MT. Still, India has one of the lowest per capita consumption of cement at ~150 kgs compared to a world average of ~ 400 kgs. Currently, the cement industry in India is facing a supply glut owing to the excess capacity created during the peak of 2005-07 in anticipation of high demand growth, resulting in a lower capacity utilization of ~78%.

Going forward, we don't expect capacity addition to be as aggressive as was seen in the last few years, as regulatory clearances are harder to obtain now viz-a-viz earlier. We expect fresh capacity addition of 24mtpa and 30mtpa in FY13 and FY14, respectively and forecast additions of only 9mtpa in FY15e. We expect the effective capacity utilization to increase from 78% in FY12 to 81% in FY15e.

On the demand side, we believe that lower interest rates would help support GDP growth. Further, the Government is expected to increase public spending in a pre-election year, thus sustaining good demand for cement. History ...
... suggests that in a pre-election year, the correlation between GDP growth and Cement demand tends to rise up to 1.5-1.6x from 1.1-1.2x.

We expect cement prices to remain elevated, as we continue to believe that the current production discipline is expected to sustain. With demand likely to grow at a healthy pace, we expect cement makers to pass on any rise in costs to the customers and keep prices firm.

Click here to see a snapshot of the Cement Sector.

Click here to see all the stocks from the Cement Sector.

Automobile Sector Report

Sector Update:

Automobile is ~USD 60bn industry in India and includes passenger vehicles, commercial vehicles, two wheelers and tractors. The size of the Indian auto industry has doubled over the last 5 years. Consumer sentiment, industrial activity, inflation, interest rates and availability of finance are the major factors that drive automobile volumes. Over the past three quarters, the auto industry has been facing a tough time, with volume of medium & heavy commercial vehicles (>7.5 tonnes) de-growing by 20%. On the other hand, volume of passenger vehicles have grown by 7% and that of two wheelers has increased by 4%. Commercial vehicle sales are cyclical in nature while two wheelers are not affected that much by swings in economic cycle.

The entire auto industry caught a chill in February. Sales recovery, which had been spurred by festive demand in late 2012, lost steam due to weak consumer sentiment. Sales of all major two-wheeler and passenger car companies declined YoY, whereas the pace of growth moderated in UVs and LCVs due to tough environment. Passenger vehicles degrew by 25% with Maruti Suzuki sales dropping by 10% during February, implying a gain in market share.

Our View:

We believe that the interest rate cycle has topped out. So, as interest rates start to fall, supported by lower inflation, there will be an improvement in consumer sentiment. Also, with lower fiscal deficit targets set for FY14 in the recent Budget, we believe inflation will be under control, thus improving savings and thereby also increasing consumer spending.

Click here to see all the stocks from the Automobile Sector.

Click here to see a snapshot of the Automobile Sector.

Author Bio

Ritish Kumar is a finance enthusiast and a keen observer of the Indian share market. In this series of articles, he talks about investing in stock market and staying profitable. Click here to see a snapshot & stock of the Cement Sector. & Click here to see all the snapshot stocks from the Automobile Sector.