However, H M Bangur, MD, Shree Cement , expects revival in demand soon becasue the base in the past three-five years had been very low as there had not been any significant rise in the cement prices over three-four years. The company's current capacity is at 13.5 mt, which it expects to double up to 26 mt in the next three-four years.The company expects to end Q3 with same margins as Q2.
Also Read: Cement demand set to improve in most parts of India: Survey
The CLSA report said the dealers expect cement price stabilisation by January 14, driven by seasonality. However, based on the pricing weakness, it has cut the earnings estimates for majors like ACC , Ambuja and UltraTech . It has downgraded Shree Cements to outperformer from buy.
Below is the edited transcript of HM Bangur interview on CNBC-TV 18
Q: I wanted to check with you on the cement prices situation because the latest we hear is that cement prices have fallen by around 3-7 percent in certain pockets of the country. Can you confirm that for us and what has the quantum of price correction been?
A: The prices have fallen in the last one to one and a half months and the prices in fact have corrected by about Rs 15 per bag or so. This is a general price range.
Q: When do you expect a revival at all? Are you seeing any signs of demand improvement round the corner or do you think you have to brace yourself for maybe the next six-eight months for tepid demand and demand to pick up only after elections?
A: Demand can pick up anytime because the base in the last five years or last three years is very low. Now the demand depends on the expectation of the market about the general economy, the gross domestic product (GDP) growth and the demand can come ahead of the GDP growth also if the expectation of the people are good. It depends on some few signs of infrastructure coming into the country and demand can be round the corner in a month or so also.
Q: This 3-7 percent price correction, how much do you think it will impact your realisations in the second half of the year and how much could it drag your margins down because you have seen margins slip to sub-10 percent levels versus 25 percent that you enjoyed last year?
A: The margins will be around that level only because as I said it has come down only in a last one month. So October and till mid-November the prices were earlier and good so our second half will be equally good or bad as you can say compared to the first half. In fact, the prices are what they were three-four years back. So the prices have not taken any significant increase in last three-four years while the costs have gone up.
Q: You are likely to end this quarter with a similar margins like you posted in Q2?
A: Yes.
Q: Usually you see good demand in the months of January all the way up until June before the rain start, will you have any elbow room to push up prices at that time?
A: Of course, the prices will be corrected. When we say corrected we normally mean to come down but here when I say corrected, it means to take the normal market rate where the cement companies will be having a sufficient margin. So I think January, June is a good month where the prices should increase a little bit.
Q: When does your capacity increase kick in?
A: Our capacity increased to roughly 32,000 tonnes a day of clinker, correspondingly 45,000-50,000 tonnes a day of cement somewhere in July this year.
Shree Cements stock price
On December 26, 2013, Shree Cements closed at Rs 4405.05, up Rs 42.40, or 0.97 percent. The 52-week high of the share was Rs 5210.00 and the 52-week low was Rs 3412.65.
The company's trailing 12-month (TTM) EPS was at Rs 272.14 per share as per the quarter ended September 2013. The stock's price-to-earnings (P/E) ratio was 16.19. The latest book value of the company is Rs 1103.32 per share. At current value, the price-to-book value of the company is 3.99.
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