The fundamentals of the industry have not changed; supply will continue to outstrip demand, and prices will be hit further
Cement stocks enjoyed a huge rally across the board yesterday mainly on reports of a 2% hike in western India - CLSA says cement dealers confirmed a 2% hike in Mumbai. Cement stocks went up anywhere between 3%-8%.
Somewhere there was an element of catch-up too - cement stocks have been underperforming the indices. So what does one make of this rally? Well, to be very honest, this looks like a one-off rally - and by the looks of it, it is already fizzling out. Nothing seems to have changed fundamentally.
Most brokerages are advising clients to not read too much into yesterday's rally. Today's CLSA report to its institutional clients states: "Over FY11-12, we expect effective supplies (17% CAGR) to outstrip demand (9% CAGR) which would take down industry utilisation rates to 20-year low of ~80%. Cement prices have already corrected by 10%-35% over the last 3-4 months and we expect pressures to continue over the next few quarters."
The report also says that while dealers have confirmed the ~2% price hike in Mumbai, they are sceptical about the market's ability to absorb it given demand-supply issues.
A channel check update for July by Anand Rathi just three days ago observes that while all-India production declined 0.2%, dispatches rose 2.2% y-o-y - they grew 16% in the west but declined 4% in the centre. The south was still leading in capacity additions. The report said 6 million tonnes have been added in March 2010, but is not yet reported by the Cement Manufacturers Association. All-India utilisation has dropped to 75%, (it was 85% same time last year, and 79% last month) - the south and north recorded lowest utilisation. Volume outperformers were JPA, Orient, Dalmia, UltraTech and India Cements (note that JPA has new capacity) while laggards were ACC and Ambuja. The report states, "prices in August slipped Rs8-12 a bag in the western and central regions; they have been stable in all other regions. In the south, price increases in certain pockets couldn't be sustained. Demand during July-August has eased, chiefly due to shrinking demand from construction at government projects and in real estate. Dealers do not expect any major price cuts in the next two to three months." So, in short, nothing much has changed in the last two months.
Religare has a different standpoint. The brokerage says, in a report dated 4th August, that it sees FY11 as the trough year for cement and expects prices to bottom out in the September quarter. The basis for this assumption is an expectation of an improvement in demand led by higher infrastructure and real estate off-take, rise in capacity utilisation as incremental additions ease off, and a firming up of cement prices. The report also talks of attractive valuations since stocks have corrected 8%-28% over the past four months limiting downside and M&A activity in the sector, fuelling a re-rating. None of these arguments feel right, at least at the moment - so in the short-to-medium term, the flat to negative trend in cement prices could continue.
Q1 earnings of the cement industry were almost universally disappointing. Companies with higher exposure to the south were more hit than others as this region saw both a supply increase and demand contraction. However, sequentially, most companies posted realisation gains of 2%-3% thanks to a price hike in March 2010. However, prices came under pressure once again towards June and right now, realisations are actually 5%-6% lower than they were in Q1. Investors, especially retail ones, will be well advised to stay away and just observe for the moment, at least for a quarter or so.
EC Media launches e-book reader Wink in India; Fortis MF introduces Fortis Fixed Term Fund-Series 18 C; Religare MF revises exit load under Religare Short Term Plan; ICICI Pru MF declares 10% dividend under two schemes; Dhanalakshmi Bank hikes deposit rates; State Bank of Bikaner and Jaipur hikes interest rates
EC Media launches e-book reader Wink in India
EC Media International has launched e-book reader called Wink XTS. The device is a multi-functional e-reader that supports upto fifteen Indian languages. Consumers can access e-books, journals, newspapers, magazines (through subscriptions) and selected articles on the Wink e-store. EC Media also plans to launch an e-paper, Winkwire, for its users. The company has also entered retail partnership with Croma, the electronic megastore. The cost of Wink XTS is Rs11,490 and will be available from 1 September 2010. The first 10 books can be downloaded free. Later on, the user has to pay some amount to download the books. However, the user pays 60% to 70% price of the actual cost of a printed book.
Fortis MF introduces Fortis Fixed Term Fund-Series 18 C
Fortis Mutual Fund has introduced a new fund called Fortis Fixed Term Fund-Series 18 C. The fund is a three-month close ended income scheme. The new fund offer (NFO) price for the scheme is Rs10 per unit. The new issue has opened for subscription on 19th August and will close on 23 August 2010. The tenure of the scheme is three months from the date of allotment of units. The scheme offers two option-growth and dividend. The dividend option offers only dividend payout facility. The investment objective of the scheme would be to achieve growth of capital by making investments in fixed income securities maturing on or before the maturity of the scheme. The scheme would allocate upto 100% of assets in debt instruments and money market instruments with low to medium risk profile. The minimum subscription amount is Rs5,000 and in multiples of Rs10 thereafter. The fund seeks to collect a minimum subscription amount of Rs50 lakh under the scheme during the NFO period. Entry and exit load charge for the scheme will be nil.
Religare MF revises exit load under Religare Short Term Plan
Religare Mutual Fund has revised the exit load structure for Religare Short Term Plan. As per the revision, an exit load of 0.25% is payable if units are redeemed on or before 45 days from the date of allotment. No exit load is payable if units are redeemed after 45 days from the date of allotment. Religare Short Term Plan is an open ended income scheme. The investment objective to the scheme is to generate steady returns by investing in short-medium term debt and money market instruments.
ICICI Pru MF declares 10% dividend under two schemes
ICICI Prudential Mutual Fund has declared a dividend 10% (Re1 per unit on face value of Rs10) in ICICI Prudential Dynamic Plan and ICICI Prudential Growth Plan. The record date for dividends is 20 August 2010. The net asset value (NAV) under the dividend plan of the schemes as on 19 August 2010 was Rs19.4103 and Rs18.71, respectively. ICICI Prudential Dynamic Plan is an open-ended equity fund. The investment objective of the scheme is to generate capital appreciation by investing in equity and equity related securities. ICICI Prudential Growth Plan is an open-ended equity fund. The investment objective of the scheme is to generate long-term capital appreciation by investing in equity and equity related securities.
Dhanalakshmi Bank hikes deposit rates
Dhanalakshmi Bank has increased its deposit rates on all tenures upto Rs1 crore by 25-75 basis points (bps). However, the bank has left its lending rates unchanged. The bank has also launched a new term deposit scheme with a 250-day maturity. Short-term deposits with 7-14 days and 15-45 days maturity will now offer 3.5% and 4% interest, respectively, an increase of 0.75%, while those with 366-399 days and 400 days will get 7.5 to 8% returns respectively, up 0.25%. For deposits above five years and upto 10 years, the revised interest rate stands raised by 50 bps to 8.25%.
State Bank of Bikaner and Jaipur hikes interest rates
State Bank of Bikaner and Jaipur (SBBJ) has raised its lending rate by 50 basis points (bps) and deposit rates by 25-50 bps across various maturities. The lending rate of the bank has been increased from 12.25% to 12.75%. Following the increase, home, auto and corporate loans have become more expensive for existing borrowers. For fixed deposit rates, SBBJ increased the interest rate by 50 bps to 3.5% for term deposits of 15-45 days' tenor. For fixed deposits with a tenor between 181 days and less than one year, the new interest rate will be 6.25% against the existing 6%, while one-two year fixed deposits will attract an interest rate of 7.25%, an increase of 25 bps. The interest rate on term deposits of between two-three years' tenor will go up by 25 bps to 7.5%, while interest on the 5-10 years' maturity slab has been increased to 7.75%.
You can use humour in ads to tell a complex product story, but the story should not get lost in the midst of all the laughs
Makers of the expensive hatchback, Fiat Punto, have released a new TV commercial. And they have cheekily attempted to marry humour with product features, and that's always a tricky proposition. The script has to be extremely carefully written for the ad to succeed.
The TVC is set inside the basement parking lot of an official/residential building or probably a mall. Some thieves are seen trying to break into the Fiat Punto. Meanwhile the car owner arrives at the scene, and nabs one of the chors. But instead of beating him up (quite natural in the circumstances), he takes the thief out for a drive. The owner then painfully explains all the car features to the scared chap. The Italian design, the multi-jet engine, the horsepower, etc. And finally the so-called 'Blu & Me' technology which allows him to make a call through the car's speakers. And yes, it's the police control room he's dialling.
While in theory this is a neat trick… the idea of demonstrating the assorted car features using humour… the route is laced with massive road bumps. What this sort of execution does, is to run the risk of the fun part of the commercial (which is the thief) overpowering the product story itself (the complicated features). As viewers, who essentially sit down to watch television, our main aim is news or entertainment. And not advertising. And even within advertising, our focus tends to gravitate towards visuals and words that cue entertainment. Ergo, in the Fiat Punto ad, our mind remains focussed on the chor and his shenanigans, and on the owner's own game plan, but very little on the car itself. So the story totally vampires the brand.
The lesson from this commercial therefore is this: When one uses humour in ads to tell a complex product story, one has to work a hundred times on the script so that the product story doesn't get lost in the midst of all the laughs. Am afraid the Fiat Punto guys didn't account for this challenge.
Lastly, and purely as an aside, I would never steal a Fiat Punto. Not that the machine is ordinary, but despite its long list of claims, there's very little legroom space for the passengers in the rear seat. The only sort of chap who can feel comfy in this car is the short thief they feature in the ad. Maybe that's why the bugger wanted the car in the first place!