Credit Suisse expects FY14 cement demand to grow 7%; prefers Ambuja, ACC.

With strong growth expected in rural housing, roads and railways, Credit Suisse expects cement demand growth to improve from 5% in FY13 to 7% in FY14. Government spending on IAY was weak in FY13 where only 80% of the budget was spent as the allocation increase per household from Rs 45,000 to Rs 70,000 was applicable from Apr. 1, 2014. Therefore, it expects FY14 demand to be strong.

'Moreover, in the past, the government spend in election years has been higher than budget on rural development activities - such as IAY and NREGA - and we have general elections expected in May 2014,' it said.

Demand growth expected for FY15 and beyond is likely to further accelerate to 7-8%, although the drivers should change, it opined.

It expects IAY demand to normalise to 6-7% CAGR although strong rural wage growth of more than 15% should continue to drive non-IAY housing growth.

NHAI initiatives to revive demand in the road sector should accelerate demand from roads in FY15. Private capex should be supported by the announced cut in interest rate cycle and the possible clearance of the draft land acquisition bill this year, it said.

Credit Suisse prefers Ambuja and ACC in cement space. Ambuja  and  ACC  both  have  strong  balance  sheets, with  net  cash  at  15%  of  market  cap and ROE at 18-19% with next two years earnings CAGR expected at 18-19%.

It prefers Ambuja because  of its  superior  regional  exposure  (high exposure  to  North  India  and  low exposure to South India), while ACC has the highest sensitivity to both price and volumes and low exposure to Western and Central India, which are our least preferred regions due to high supply pressure.


Source : myiris.com