Cement: Primary Channel Check - Rajasthan market - Karvy

Key takeaways from an interaction with a senior marketing executive of a cement plant in Rajasthan

- Rajasthan being a large limestone belt, it accounts for ~45-50 mn MT of total installed cement capacity (~15% of total India capacity) with production utilization of ~80% during FY12. As per our analysis, Rajasthan is expected to add another 18 mn MT of new capacity during FY14-16 period.

- Rajasthan market accounts for ~1-1.3 mn MT of total cement consumption per month which is approx 6% of total cement sales in India. During the last six months of CY13E, demand rose by ~15% YoY. There are a total of 500-600 cement dealers of various companies across the state.

- The prominent brands in the state are Ambuja Cements, UltraTech, Binani, JK Lakshmi, Shree Cement and JK Cement & Wonder Cement. Ambuja Cements sells approx 90% through its retail trade network (and only 10% in Non trade) while Shree Cement is more aggressive in the non trade segment in Rajasthan (~60% of its total sales in Rajasthan). Other brands sell 60-70% in trade and the remaining in non-trade.

- In terms of price differentials across various cement brands, Ambuja commands the best price in the state, followed by UltraTech which sells at ~Rs 2 per bag discount to Ambuja Cements. Other brands sell at ~Rs 5 per bag discount to Ambuja Cement. Currently, trade prices range between Rs255-260 per bag. Non trade prices are at Rs30-40 discount to the-trade prices.

- Rajasthan is witnessing good monsoon this year which has resulted in weak demand in near term. However, a good monsoon should benefit cement demand growth in the state post the harvesting season - primarily from tier-2/tier-3 towns & villages.

- Plant location is a key competitive advantage for cement manufacturers in the state and in this regards, Shree Cement is centrally located thereby benefitting its better customer reach and lower operating costs.

Source : Equity Bulls

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