Channel Check | 1 October 2013
Cement
Prices up INR20-50/bag in last 10 days of September
2QFY14 average down INR4/bag QoQ; north, east see highest QoQ fall
We interacted with cement dealers across regions to get some ground reality on pricing
trend and demand. Presenting our key takeaways:
Cement prices rose sharply by INR20-50/bag in last 10 days of September, after a
steady downtrend/subdued movement over August-1H September.
Overall, national average price for 2QFY14 declined INR4/bag QoQ (INR18/bag
YoY). The regional trends are (per bag QoQ): (1) North –INR14, (2) East –INR9,
(3) West –INR3, (4) South +INR4, and (5) Central +INR2.
Demand remains weak, albeit there was marginal MoM improvement in late
August and September. Key regions where dealers portrayed a better demand
picture are Rajasthan and Delhi (North), Pune (West), and Bangalore (South).
We are revising our realizations growth assumption for FY14/15 at INR0/10 per bag
YoY (v/s earlier estimate of –INR3/15 per bag) to factor in (1) relatively lower than
expected price decline in 2QFY14 (hence, upgrade in FY14 realizations), and
(2) weaker demand revival visibility (hence, downgrade in FY15 realizations).
With lower clarity on demand recovery and so far a weaker trend in 1HFY14, we
estimate 3% YoY volume growth in FY14 (implied 4.9% YoY growth in 2HFY14).
In large-caps we prefer UltraTech/Grasim and Shree Cement, whereas in mid-caps
we prefer Birla Corp, Madras Cement and Dalmia Bharat.
Jinesh Gandhi
(
Jinesh@MotilalOswal.com) +91 22 3982 5416
Sandipan Pal
(
Sandipan.Pal@MotilalOswal.com) +91 22 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.

Cement | Channel Checks
Sharp price hike taken across regions
In most regions, dealers
hinted that another round
of price hike was likely in
early Oct-13
Cement prices rose sharply by INR20-50/bag in last 10 days of September across
regions, after a steady downtrend/subdued movement over August-1H
September. The late September price rise was sharpest in South, followed by
North, East/Central and West. With this, the prices recorded a volatile trend in
2QFY14 (as illustrated in table on next page) to end with net national average
price decline of INR4/bag QoQ to INR277/bag (down INR18/bag YoY). Gap
between trade and non-trade prices widened to INR60-70/bag in August/1H
September in select regions (particularly in West due to extreme low non-trade
prices). The gap, however, contracted moderately in late September. In most
regions, dealers hinted that another round of price hike was likely in early Oct-13.
Marginal MoM improvement in demand amidst sluggishness
Key regions where dealers
portrayed a better demand
picture comprises Rajasthan
and Delhi (North), Pune
(West), and Bangalore
(South)
Demand continues to remain weak, but improved marginally MoM in late August
and September. Key regions where dealers portrayed a better demand picture
comprises Rajasthan and Delhi (North), Pune (West), and Bangalore (South).
Weakness were high in Ahmedabad (West) and Hyderabad (South). Majority of
the dealers attributed persistence of operational, political and liquidity challenges
among key consumer segments.
Sequential price trend in line for 2QFY14
In 2QFY14, North and East
to witness highest QoQ
decline, while South will see
sequential uptick in cement
prices
We had assumed INR4-5/bag QoQ decline in average realizations in 2QFY14 for
MOSL cement universe. The net outcome of the channel checks have largely been
in line with estimates with national average prices down INR4/bag QoQ. But there
were surprises in the cement prices trend in North, East (both negative) and
South (positive). In 2QFY14, we estimate QoQ change in regional cement prices
as: (1) North –INR14, (2) East –INR9, (3) West –INR3, (4) South +INR4, and (5)
Central +INR2.
Change in assumptions and earnings estimates
We are revising FY14 and
FY15 price growth
assumptions upward and
downward respectively,
while cutting FY14 volume
growth estimate at 3% YoY
On the back of lower clarity over demand recovery and so far a weaker trend
in 1HFY14, we estimate 3% YoY volume growth in FY14 (implied 5% YoY
growth in 2HFY14).
We are revising our realizations improvement assumption for FY14/15 to
INR0/10 per bag YoY (v/s earlier estimate of -INR3/15 per bag) to factor in:
(1) relatively lower than expected price decline in 2QFY14 (hence, upgrade in
FY14 realizations), and
(2) weaker demand revival visibility (hence, downgrade FY15 realizations).
While demand recovery is expected to be gradual, slowing capacity addition
coupled with higher capex and opex cost would support cement prices and
profitability going forward.
Recovery in demand would be critical for operating and stock performance.
In large-caps we prefer
Ultratech/Grasim
and
Shree Cement,
whereas in mid-
caps we prefer
Birla Corp, Madras Cement
and
Dalmia Bharat.
October 2013
2

Cement | Channel Checks
*Pricing data based on interaction with 25-30 dealers across regions till 27th September-13
October 2013
3

Cement | Channel Checks
Cement prices: Sharp rise in late September amidst volatility
Overall, national average
price for 2QFY14 declined
INR4/bag QoQ (INR18/bag
YoY)
The gap between trade and
non-trade prices widened
to INR60-70/bag in August/
1H September in select
regions
Cement prices rose sharply by INR20-50/bag in last 8-10 days of September
across regions, after a steady downtrend/subdued movement over August-1H
September.
With this, the prices recorded a volatile trend in 2QFY14 (as illustrated in above
table) to end with decline of INR4/bag QoQ (INR18/bag YoY) in national average
prices to INR277/bag.
The late September price rise was sharpest in South, followed by north,
east/central and west.
In most regions, the dealers hinted about probability of another round of price
hike by companies in initial few days of October-13.
Dealers hinted about price volatility during 2QFY14 due to dual impact of (a)
sporadic competitive pressure co-exiting with (b) repeated attempt to hike
prices through production discipline.
The gap between trade and non-trade prices widened to INR60-70/bag in
August/ 1H September in select regions (particularly West due to low non-trade
prices) compared to normal gap of INR25-30/bag. The gap contracted
moderately in late September.
Amidst this demand continues to remain weak (but incrementally higher MoM
with declining monsoon impact).
Cement prices continues to post YoY de-growth since Mar-13 (%)
2QFY14 prices down INR4/bag QoQ (v/s our est. of INR4-5/bag)
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
North
East
West
South
Central
National
Average
Source: Industry, MOSL
Source: Industry, MOSL
While volume growth (%) data from two available sources suggests different trend, both continue to
be subdued since 2QFY13
We estimate 1.3% YoY (-8%
QoQ growth in 2QFY14
dispatch volume for MOSL
coverage universe
MOSL Universe
10.2
6.9
8.5
4.0
6.4
3.6
3.2
4.3
6.0
0.9
4.0
6.1
9.4
10.4
13.8
IIP data
9.8
5.6
8.3
2.7
2.6
2.0
-2.2
4.9
3.3
2.7
1.3
9.0
0.7
Source: Industry, MOSL
October 2013
4

Cement | Channel Checks
Regional snapshot
Price trends over September-13/1QFY14 across regions
North region: Highest QoQ drop among regions
In 2QFY14, the blended
average price witness
sharpest fall in north by
INR14/bag QoQ (INR27/bag
YoY) to INR245/bag
In 2QFY14, the blended average price witness sharpest fall in north by
INR14/bag QoQ (INR27/bag YoY) to INR245/bag.
In September-13, the average price stood at INR239/bag (-5/bag MoM, -
INR25/bag YoY).
While prices increased by INR20-40/bag in late September-13, there has been a
steady downfall between July to 1H September-13 by almost INR35-50/bag.
Dealers are optimistic on further improvement in 1st week of Oct-13, but
remain cautious about the sustainability of the same as visibility of demand
revival is yet to gain strength.
Labor issue, sharp price rise in sand and stone in Punjab/Haryana and
stalled/slow-moving constructions in Delhi/Gurgaon are some key challenges
highlighted by the dealers
Volume has been better in Rajasthan and Delhi, compared to Punjab.
NATIONAL AVERAGE: Blended average price trend
National
Average
NORTH REGION: Highest QoQ drop among regions
Source: Industry, MOSL
Source: Industry, MOSL
South region: Sharpest bounce back in September
While prices in AP fell by
INR35-45/bag between July
to 1H September-13, it
went up by INR25-30/bag in
late September
In 2QFY14, the blended average price witness best QoQ trend with +INR4/bag
increase (-INR9/bag YoY) to INR294/bag.
In September-13, the average price stood at INR295/bag (+4/bag MoM, -
INR3/bag YoY).
Sharp price rise in AP in late 1QFY14, has been key attributable factor behind
strong QoQ trend. While prices in AP fell by INR35-45/bag between July to 1H
September-13, it went up by INR25-30/bag in late September. Likewise,
Chennai and Bangalore prices which had seen 20-30/bag decline over July-
August before rising by INR35-50/bag in last 8-10 days of September.
While Bangalore dealers seem to be satisfied with the demand trend, there has
been impact on AP demand on Telengana issue. Utilizations remained low
among players.
Gap between trade and no-trade prices are INR50-60/bag, which is higher than
normal, and hence could aid downward pressure if volume doesn’t pick up.
5
October 2013

Cement | Channel Checks
Repeated attempts by
cement players to increase
prices (due to very low non-
trade prices in the interim)
failed to gather
sustainability strength due
to weaker volume in
Gujarat.
Western regions: Strong MoM jumps in prices partially offsets otherwise
weak 2QFY14
Western region had weakest pricing trend over early 2QFY14, followed by a
better performance over 2H August and 1H September-13.
Overall, in 2QFY14, the blended average price witness decline of INR3/bag QoQ
(-INR23/bag YoY) to INR272/bag.
In September-13, the average price stood at INR276/bag (+14/bag MoM, -
18/bag YoY).
Repeated attempts by cement players to increase prices (due to very low non-
trade prices in the interim) failed to gather sustainability strength due to weaker
volume in Gujarat.
Demand remains weak in both Gujarat and Maharashtra owing to heavy rains
and continued lack of liquidity in key consumer segments.
Gujarat/Mumbai dealers indicated that monthly volume had declined by almost
30-35% YoY in July-13 and 1H August, but improved moderately in late August
and September. Supply from Rajasthan and weakness in construction due to
change in development regulations have impacted the dynamics.
Pune dealers highlighted that the prices has been volatile, but gain strengths
due in past 40 days with better volume, before coming off again in 2nd half of
September.
WEST: MoM jumps in prices partially offsets weak 1H 2QFY14
SOUTH REGION: Sharpest bounce back in September
Source: Industry, MOSL
Source: Industry, MOSL
Eastern region: 2QFY14 price trend underperformed
A sharp correction in
Kolkata, Patna and Ranchi
(by INR25-40/bag) in 2H of
August were reversed in 2H
of September
Otherwise resilient eastern market under performed in 2QFY14, largely due to a
sharp correction in Kolkata, Patna and Ranchi (by INR25-40/bag) in 2H of August
due to heavy rains.
While there has been subsequent increase in prices by INR25-35/bag in late
September, it dent the blended average of 2QFY14 prices, which stood at
INR307/bag (-9/bag QoQ, -24/bag YoY).
In September-13, the average price stood at INR304/bag (-1/bag MoM, -23/bag
YoY).
Price difference between tier I and II brand widened to INR60-70/bag in August,
as against INR20-30/bag in usual scenario.
Raipur/Bilaspur witnessed a relatively stable price trend with no major hike
taken in late September as well due to existence of parity to MP market.
Planned inventory level with dealers continues to remain low. Supply from AP
6
October 2013

Cement | Channel Checks
(to Orissa) and Rajasthan continues to remain pressure point, albeit some
production discipline and price rise in AP have benefited partially.
Central region: Prices down INR8/bag MoM
Blended average prices were down by INR8/bag MoM (-INR19/bag YoY) to
INR253/bag in September-13. 2QFY14 blended average price stood at
INR264/bag (-INR3/bag QoQ, -INR18/bag YoY).
Prices have corrected INR30-40/bag in August and 1H September-13, and
companies have taken hike of INR25-30/bag in late September-13.
Demand has been weak. Change in design approval norms in Indore has delayed
execution.
Dealers however expect another round of price increase in October-13.
EAST REGION: 2QFY14 price trend underperformed
CENTRAL REGION: INR8/bag MoM price hike
Source: Industry, MOSL
Source: Industry, MOSL
Valuation & view
Quarterly trend in cement
prices have been in line
with expectations of
INR4/bag QoQ decline, but
there were surprises in the
cement prices trend in
North, East (both negative)
and South (positive)
We had assumed INR4-5/bag QoQ decline in average realizations in 2QFY14 for
MOSL cement universe. The net outcome of the channel checks have largely
been in line with estimates with national average prices down INR4/bag QoQ.
But there were surprises in the cement prices trend in North, East (both
negative) and South (positive).
We are revising our realizations improvement assumption for FY14/15 at
INR0/10 per bag YoY (v/s earlier estimate of -INR3/15 per bag) to factor in (1)
relatively lower than expected price decline in 2QFY14 (hence, upgrade in FY14
realizations), and (2) weaker demand revival visibility (hence, downgrade FY15
realizations).
On the back of lower clarity over demand recovery and so far a weaker trend in
1HFY14, we estimate 3% YoY volume growth in FY14 (implied 5% YoY growth in
2HFY14).
While demand recovery is expected to be gradual, slowing capacity addition
coupled with higher capex and opex cost would support cement prices and
profitability going forward. Recovery in demand would be critical for operating
and stock performance.
In large-caps we prefer
UltraTech/Grasim
and
Shree Cement,
whereas in mid-
caps we prefer
Birla Corp, Madras Cement
and
Dalmia Bharat.
7
October 2013

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Cement | Channel Checks
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Company
Dalmia Bharat
Birla Corporation
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October 2013
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8