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Cement: Cement prices take a dip in December

As per our recent channel check with cement dealers across all major cities of India, the cement prices have fallen by around Rs8-10 per bag of 50kg in the last fortnight. Among the major cities, the price fall has been more severe in cities like Chennai and Kolkata where the price has fallen by around Rs10-15 per bag to reach Rs235 and Rs230 per bag respectively. On the other hand, in cities like Mumbai, the major cities of Gujarat and of the northern region, the price correction has been limited to Rs5-7 per bag. As per the dealers, the prices are likely to pick up gradually from mid January. 
The cement industry normally records impressive offtake in the second half of a fiscal due to the post-monsoon pick-up in construction activity. In October this year the industry posted a robust volume growth of 17.5% year on year (YoY). However, the momentum in the volume growth failed to continue in November as the major players posted a decline in their volume. As per our channel check the offtake is improving in Gujarat, Mumbai and Rajasthan whereas it has remained lacklustre in Andhra Pradesh, Tamil Nadu and the major cities of the eastern region. 
During H1FY2011 the domestic cement industry added around 22MMT of new capacity (excluding ACC and Ambuja Cements). Further, as per the expansion schedule of the cement companies, around 12MMT of new capacity is likely to commence production by the end of FY2011. We believe capacity addition is likely to put pressure on the utilisation ratio and consequently on cement prices. 
Due to the frequent fall in the cement prices coupled with a poor dispatch growth posted by most of the companies for November 2010, the stock price of most of the cement companies in the last one month has corrected sharply. In the last one month, the broader market has corrected by around 3% whereas the stocks of most of cement companies have corrected by 3% to 18%.

VPS Advisory advises to buy Lakshmi Cement @ CMP 55 Target @ 60 for Intraday Traders