I haven’t run any valuation numbers for any of these companies. But general data that I had collected about 3-6 months back and a few questions follow -
a) Operating costs: Coal and freight costs constitute quite a chunk of operating costs. With the uptick in prices of domestic coal and more coal imports, along with a possibility of a diesel hike post UP elections, how far do you think this would impact the valuations? (Btw, freight costs for southern cement companies is higher due to comparitively lower consumption and higher supply. So, on what basis are we saying that the cement companies stock prices move up, starting with companies in the north?) (JK Lakshmi cement’s sales are primarily in the North and East).
b) In volume terms, the break up of cement demand across regions is something like this -
North - 17%
East - 17%
South - 31%
West - 19%
Center - 16%
c)Let’s look at the bare basics. Housing constitutes 60% of the demand for cement, while 20% each is shared between Infrastructure and Industrial consumption. I am not too sure if a lot of infrastructure is being built in the South (Andhra being the main culprit) and with South constituting the major volume %, how far is this sustainable? How many new housing projects are you seeing springing up in and around your areas?
d) Coming to price hikes, it has not been uniform across the country. North (Rs9/bag) & Central(Rs12/bag) region have had highest price hikes followed byEastern region (Rs7/bag). South remains flat (I checked with a shopkeeper beside my place). Prices in West too remain flat. In fact, Gujarat saw a price cut of Rs. 10-15/bag.
The avg. price per bag after the hike in each of the regions are -
North - Rs. 250/bag
Central - Rs. 239/bag
East - Rs. 251/bag
West - Rs. 236/bag
South - Rs. 282/bag
g) If I remember correctly, there has been significant capacity addition across players, and the utilization levels hovered between 70-80%. Can we see some link to the data where the report says ‘little or no capacity addition’?
h) ACC, Ambuja, Ultratech have a lot of exports as part of their revenue composition and from what I can see at a cursory glance at these companies’ numbers vis-a-vis their stock prices today, they seem to be overvalued.
i) EV/ton in cement companies depends on a whole host of factors, but primarily capex across the industry. As far as I can recollect, replacement cost in EV/ton terms was around $120 and not $180. Have we done/can we get a report where this EV/ton calculations were done for players in the industry to get a feel of under/over valuation?
d) How far do you think are we seeing these superior numbers due to a very low base effect of FY11? And how sustainable is this? I mean Mar 11 numbers look pretty ok to me. Does that mean Mar 12 numbers would disappoint us?