indiainfoline.com/mailerCement Monthly Update - September 2008
In September 2008, India’s cement consumption grew 9.6% yoy, a sharp contrast
to the weak performance in the previous month. However, the strong consumption
growth is unlikely to sustain in coming months as the real estate market
(largest consumer) in North and Central region continues to weaken. South
market witnessed strong demand supporting firm pricing (up 4.7% yoy) in the
region. However, prices might correct in the upcoming monsoon season.
International coal prices and freight cost have come off significantly from
their peaks but the sharp rupee deprecation of 6.3% during the month
neutralizes the beneficial impact to an extent. The key concern remains the
weakening cement demand due to a dip in construction and infrastructure
activities in the country. We believe that cyclical downturn will start
impacting realization sooner than later, leading to further contraction in
margins of cement manufacturers. This could lead to de-growth in earnings for
many industry players.
a.. Rebound in consumption growth; Central and South region outperform
b.. Contradictory pricing trend emerge; realizations remained robust in South
c.. Capacity utilization improves mom but remains lower yoy
d.. Key performers were players who have recently added capacities
e.. Coal prices cool from peak; freight index falls to the lowest levels
since 2002.
Click here for a detailed note on the same.
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FMCG Q2 FY09 Review: “Growth in line with expectations”
Performance of most companies in our universe was in line with our expectations
during Q2 FY09. All companies recorded double digit revenue grow th led by
strong volume growth across segments. However, operating margins remained under
pressure due to a sharp rise in raw material prices. Over the past month, most
of the key raw material prices like LAB, crude oil and palm oil have started
correcting and are expected to ease the margin pressure in the coming quarters.
Food companies though, are likely to continue to witness margin pressure on
account of firm agri commodity prices. Most players have taken measures like
price hikes and reduction in pack sizes to mitigate cost pressures. We continue
to remain positive on the sector with ITC and Marico as our top picks.
Click here for a detailed note on the same.
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Godawari Power and Ispat Ltd (GPIL): Conference Call Note
India Infoline Research Team / Mumbai Nov 05, 2008 09:56
Godawari Power and Ispat Ltd (GPIL) organized a conference call to
discuss its Q2 FY09 results and its future expansion plans. The key takeaways
from the call are as follows
Conference call highlights:
a.. Production of billets in the last month of Q2 FY09 dropped sharply
due to rising input costs (pig iron). High prices and unavailability of pig
iron, which is used as a feed in manufacturing steel billets, led to a
reduction in steel production volumes. Cost of pig iron per ton during the
quarter rose to Rs29,000 from Rs26,000 in the previous quarter.
b.. The reduction in billet production aided the company to sell its
captive power in the open market. The company was able to sell ~15MUs of power
at a rate of Rs6.5 per unit during the quarter. Majority of the power sales was
registered in September.
c.. In the last one month, price realisations for the company have
dropped drastically. Sponge iron prices have plummeted due to a crash in scrap
prices globally.
Sharp fall in steel and metallic prices
Q2 FY09 Current Growth
(Rs/ton) (avg) (%)
Sponge iron 21,205 13,000 (38.7)
Billets 34,271 23,000 (32.9)
HB wire 40,892 30,000 (26.6)
Ferro Manganese 86,748 60,000 (30.8)
Source: Company, India Infoline Research
a.. The company has stopped procuring iron ore from NMDC on account of
the price hike announced by NMDC last month. Instead, the company has been able
to source iron ore at much lower rates from local miners in Orissa.
b.. The company during the conference call indicated that they will
continue to reduce billet production and sell power in the open market.
c.. The company has indicated that they will produce a mere 50,000 tons
of billets in H2 FY09. This will reduce the overall billet sales volume to
0.15mn tons in FY09 and 0.1mn tons in FY10.
d.. The reduction in steel billet production will lead to sales of
~23MW of power during the rest of the year.
e.. The iron ore allotted to the company will be operational in Q3
FY09. The company expects to mine ~0.07-0.1mn tons of iron ore in FY09 and
~0.4-0.5mn tons in FY10.
f.. The company’s debt position at the end of Q2 FY09 was Rs1.9bn in
rupee loans and Rs480mn in foreign currency loans. Cash balance stood at
Rs550mn.
Outlook
GPIL has been proactively taking steps to maximize its return on capital.
Due to a slowdown in the demand for the billets, the company reduced its
production and started to sell power. Owing to the global financial crisis,
demand for steel products has reduced drastically. We expect the demand will be
higher from the current levels in the next two months. Steel and steel product
prices have fallen more than 30% in the Asian markets. We expect steel
realisations remain at current levels for the rest of the year. The company’s
captive iron ore mine will aid in decreasing the raw material cost pressure.
Despite a fall in steel realisations, the company’s OPM is expected to expand
in FY10. At CMP of Rs75, the stock trades at P/E multiple of 2.3x and 2.4x on
estimated earnings of Rs39.5 in FY09E and Rs37.5 in FY10E, respectively. We
recommend a BUY with a target price Rs110 based on a 2.5x FY10E EV/EBIDTA.
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