Prabhudas Lilladher underweight on cement sector

Prabhudas Lilladher has maintained its underweight rating on the cement sector. Given the strong demand from the infrastructure sector, prices are expected to remain firm across the regions with an upward bias.

Prabhudas Lilladher’s report on Cement sector:

Given the strong demand from the infrastructure sector, prices are expected to remain firm across the regions with an upward bias.

The current surge in demand is primarily a lag period demand (related to infrastructure sector), which couldn’t transform in to effective demand in the first half (with regards to the northern, central and eastern region), owing to poor liquidity. Demand from the infrastructure sector picked up on the back of improved liquidity, coupled with seasonal year-end demand.

Nevertheless, incrementally we expect demand to deteriorate sharply during the first half, given the massive slump in the housing market (constituting 60% of total demand) and lack of strong desire on the part of the Government to expedite the spending on the infrastructure projects. Moving to the supply side, the situation seems very grave with soaring surplus and falling operating rates at 8-year low in FY10 due to a consistent capacity addition across regions and slowing demand. We maintain Underweight on the sector.

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