Cement: Strong demand, but accelerated capacity addition can weaken prices

Indian cement companies have been reporting strong volume sales for the past few months. The additional capacity that has come on stream has enabled most of the cement manufacturers to increase the total cement production. Various measures introduced in the budget to stimulate rural growth in infrastructure and an increased allocation in various infrastructure projects is expected to sustain the demand. Cement prices rose across India in Feb 2010 post Union Budget, due to higher excise duty, increase in freight costs and on the back of a shortage in the availability of rail wagons. We expect prices to remain firm on account of the demand arising from the Commonwealth Games, infrastructure spending and recovery in urban housing segment . However, the rise in prices is expected to be a short-term trend, as the new capacity addition over the last few months is expected to exert pressure, going ahead. We believe that north-based players will do well as compared to south-based players, on account of relatively balanced demand-supply dynamics.

By, Mr. Rupesh Sankhe,Sr. Analyst-Power & Cement, Angel Broking

Infrastructure – Look beyond a quarter

Over the years, India has been experiencing power deficits, an inadequate road network to support the ever-burgeoning vehicular traffic, ports serving as bottlenecks, and so on and so forth. However, it is imperative that the growth of the human population is accompanied by a matching growth in the underlying infrastructure (at the minimum), if not more. When this does not happen, it starts to have a draw-down effect on the overall growth of the economy. Considering this, investment in infrastructure has been the focal point in recent years, as realisation dawned on the government that inadequate infrastructure has been withholding India's growth and deterring foreign players from investing in the country. Therefore we believe that Infrastructure sector is an ever shining theme for reasons mentioned above. However, the stocks in the Infra space have witnessed a battering over the past few weeks mainly on account of disappointing set of results, which in part can be attributed to the ongoing Telangana (AP) crisis leading to delay in execution due to various reasons. We believe that an Infrastructure Company’s performance should not be judged from only from quarterly performance but a macro view needs to be taken while betting on them as the inherent nature of the business is lumpy and prone to delays. Thus, the current correction is an opportunity for long term investors to play on the ever shining infra theme in India.

By Shailesh Kanani,Sr.Research Analyst-Infrastructure & Real Estate, Angel Broking