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00:00Hello and welcome. You are watching the Small and Mid-Cap show. I am Mahima Vacharajani.
00:11Well, today's focus remains on the cement, infra and the auto space. We are going to
00:16speak to two different analysts today on the show. First off, we are joined by Mr. Ronald
00:21Sione, Research Analyst of Infra and Cement at Shekhar. Welcome to the show, Ronald. My
00:28first question to you is that, you know, in your note you have mentioned that the industry
00:33has sustained the demand for cements in the past 15 years and the government has allocated
00:39around, you know, 111 lakh crore infra investment from FY20 to FY25, which will boost the demand.
00:47But for FY25, what is the kind of demand trends that you are observing for cements?
00:53Yeah. Hi. Good morning and thank you for having me on the show. So, cement demand for FY25
00:59is expected to be in the highest single digits, about 7 to 9% YY, while cement players are
01:06expected to outperform this industry growth rate. You know, most of the major players
01:11in the cement space are eyeing a double digit kind of volume growth for FY25, which would
01:18be aided by, you know, both the ongoing expansions which are happening and apart from that the
01:25demand, industry demand growth, which is expected in high single digits.
01:30Thank you, Ronald. This is Meeka Desai, Director of Cement Space closely at NDTV Profit. You
01:34know, you spoke about, you know, good demand for FY25, but when you talk about what would
01:39drive the demand, what are the kind of factors that would drive demand going forward in the
01:44next two to three years, let's say? So, the key driver would be the infrastructure
01:51sector as we see, you know, the incumbent government having the mandate for the next
01:55five years. So, there is a continuity of policy and, you know, the thrust on infrastructure
02:01is not going to be lowered. And hence, you know, we are expecting government-led infrastructure
02:09investments, especially in sectors like roads, metros, railways, you know, ports, airports.
02:16So, this kind of infrastructure investments are expected to continue over the next four
02:21to five years. Apart from this, we are also seeing, you know, a strong pre-sales numbers
02:27from real estate companies as well, which are listed. You know, today only MetroTech
02:32came out with pre-sales number with, you know, 20% YY growth. So, over the last, you know,
02:38one to two-odd years, there has been continued momentum in terms of pre-sales, which has
02:44been happening in the real estate space and which is, you know, across pan-India level.
02:49So, these projects, you know, when comes into execution, so over the next four to five years,
02:54there would be a demand from these projects as well. So, both, you know, infrastructure-led
03:00government spending and, you know, housing sector, both should contribute to the demand
03:06momentum for the next four to five years for the cement space.
03:09Got it. Ronald, you know, in terms of prices, you know, pan-India, the average traded prices
03:16have remained flat around Rs. 345 per bag, that is month-on-month for July.
03:21But overall, what are the kinds of trends that you're observing in cement prices?
03:27So, April month had been weak in terms of demand due to election code of conduct and
03:32hence we had seen, you know, April prices were much lower to exit prices of March.
03:39But post that, you know, there has been efforts during June,
03:44improvement in prices, but which has not, you know, fairly gone through.
03:49Overall, for quarter one of FY25, still, you know, the prices are down by about three to four percent,
03:55but it is also owing to weak demand. If you see May and June, both the months,
04:01you know, have seen improvement in demand compared to April. So, there is revival there.
04:06So, for the sector as a whole, you know, as to FY25 would be a key period where we should,
04:12you know, expect cement prices to improve, where also the demand is expected to improve.
04:19So, post the monsoon season, this would be the two key monitorables, which, you know,
04:25would be, you know, weigh on the earnings for FY25 for the cement space as a whole.
04:32But yes, cement prices remained weak during April. So, that has impacted overall,
04:38you know, Q1 numbers. Yes.
04:40Another factor is also, you know, the benefit from power and food. You know,
04:46we have seen petco prices are both imported and domestic health softened a little bit,
04:51you know, three to five percent sequentially during Q1 of FY25. For July month, you know,
04:57domestic petco are flat, US petco, you know, is a little bit down two to three percent. So,
05:03there is some headroom in terms of power and fuel cost during H1 FY25, but that may not,
05:10you know, cover up the entire, you know, weak realization during the period.
05:15Yes, got it, Ronald. I know you said post monsoons we could expect, you know, an uptick in prices. So,
05:20are you indicating that there would be price hikes to the second half of FY25?
05:26It is a possibility, but we need to see whether, you know, cement players
05:31eye for a higher capacity share. As you know, inorganic expansions have, you know, taken
05:38a front sheet and many players, larger players are eyeing, you know,
05:43mid-size acquisitions also. So, much would depend on what kind of strategies they use,
05:50you know, whether they would go for a higher capacity market share or whether, you know,
05:56they would show some pricing discipline once these acquisitions have gone through.
06:01Yes, and Ronald, I know that, you know, volume uptick is expected, but however,
06:05prices have remained flat. So, in terms of EBITDA per tonne, I know there's some support
06:10from the lower input costs and, you know, all the cost efficiency efforts by the companies.
06:15But in terms of Q1, could we see an EBITDA per tonne decline and if for which counters
06:21would be impacted the most? Actually, we are yet to come out on
06:27preview numbers for the cement space. Hence, you know, you will have to wait for that. But,
06:33you know, it looks like there could be, there will be a sequential pressure on operational
06:37profitability. But, you know, investors may not look at this near-term pain. They would take this
06:46as a buying opportunity if there are big results during H1 FY25 because suppose that there is a
06:52good positive outlook for the space. So, this could provide a buying opportunity if, you know,
06:59they underperform the market expectations. But we are still to come out with the preview numbers.
07:04Got it. Ronald, now, you know, in terms of cement companies in the southern region,
07:10they were quite fragmented. But the last five deals that have taken place
07:14have, you know, kind of consolidated the overall cement space. So, considering this, you know,
07:20what kind of pricing strategy are you seeing? Do you think that, you know, the prices will go up
07:27or do you think the prices will come down considering, you know, this could lead to a cartel?
07:32Southern space, if we speak about them, there is a great volatility. You know,
07:38suddenly there is a sharp fall in the prices and suddenly there is a spike in the
07:43cement prices. But, yes, last acquisitions, you know, by Ambuja Cement through Pena and, you know,
07:49Ultra Tech making a strategic investment in India Cement, you know, is putting a pressure
07:55on southern players like Ramco Cements, you know, which has been under pressure recently.
08:01But on the demand front, the southern region is also expected to see a very strong demand.
08:08And, you know, we should not forget that the southern region has also given a strong
08:13double-digit volume growth for, you know, over the last two to three quarters. Hence,
08:19if the demand momentum continues, that there should not be any problem in terms of cement
08:24prices, you know, they might remain stable, they might also improve a little bit. But it all
08:31depends on, you know, the continuity of demand, which as of now looks very strong in the southern
08:38region. Thank you. Especially with government continuing in Telangana. Yes. And in terms of
08:44the cement space, what would you say are your top picks, you know, from an investor point of
08:50view at current valuations? So, we have seen, you know, Ultra Tech, you know, getting a good
08:57head start in terms of valuation. It's almost trading at 18 to 19 times EV to EBITDA on FY26
09:04earnings. But, you know, mid-sized players like Sri Cement, Dalmia, Bharat, Ramco, JQLF Cement,
09:10they are yet to catch up on the valuation front. And hence, we see the opportunities there, you
09:16know, in terms of Sri Cement, Dalmia, Bharat, Ramco Cement and JQLF Cement to catch up on
09:23valuation and good picks to buy. Ronald, now, you know, I'll try to shift focus on the infraspace.
09:31You know, the government's continuous push to boost the infraspace overall has, you know,
09:36remained the goal for the past 10 years. And now that we have government continuity and policy
09:41continuity, what kind of changes are you expecting this budget for the infraspace? And,
09:48you know, what kind of policies do you think will the government come up with to boost these
09:53infracompanies? So, I think there would be a continuity and, you know, despite lower,
10:00you know, number of seats for the majority party, still they would like to show that,
10:09you know, the focus on infrastructure would continue to be there, despite, you know, some
10:14kind of populist measures. But road sector would, you know, continue to be the front, you know,
10:22road and railways would continue to be the key, you know, sectors in which
10:29investments would be targeted. And they may, you know, provide a roadmap not only for FY25,
10:36but over the next three to four years, we know what kind of investments and where they are,
10:41you know, looking to increase the capacity in terms of roads, railways, ports, airports. So,
10:48more or less, you know, you should see continuity. And once, you know, as this election
10:53code of conduct gets over, we are already seeing, you know, uptake in road tendering activities. So,
10:58this has really started. And big ticket size, larger projects may get, you know, announced.
11:04That will also provide, you know, a respite in terms of, you know, continuity in demand
11:09and government's focus on infrastructure investments. Got it. And Ronald, for railway
11:14stocks to be specific, you know, they've run up quite a bit since the past one and a half year
11:19now. And their valuations have also been, you know, quite heavy. So, where do you see,
11:25what are the pockets where you see value at present when it comes to railway stocks?
11:30Actually, I do not have covered railway stocks, but in Infra, I look after KNR and PNC in part.
11:38So, these are the two preferred picks in the infrastructure sector.
11:42Okay. And in terms of valuation, where do you see the value right now,
11:45whether it's the large cap, small cap or mid cap for the infraspace?
11:51The value would lie, of course, in the large cap because, you know, players like L&T,
11:57and larger players, you know, are much more in a comfortable position to eye or to bag
12:05large ticket size project because the project sizes has increased. And so has the, you know,
12:10technical capabilities, which the players would have, should have to execute this project. So,
12:17yes, larger and mid size players should, you know, benefit in terms of bagging the projects.
12:26Okay, well, Raudel, thank you so much for sharing us those insights on cement and
12:31infraspace overall and taking our time and speaking with us at NDTV Profit.
12:35Now, we are joined by Mr. Manish Raj Singhania, the President at FADA, to talk to us about the
12:41June auto sales data. And we also have today on the show, Puneet, who tracks the auto space
12:47at NDTV Profit. Manish, my first question to you is that, you know, the extreme heat and
12:54delayed monsoons have overall affected the rural sales overall. What are your views on that? And
13:00going forward, what are you expecting? So, the month of June saw on a YOY basis
13:07and two-wheeler segment a growth of 4.66%. But passenger vehicles were definitely hit.
13:13And there was a drop of retail by 6.77% in PV segment. The main reasons we could attribute was
13:21the delayed monsoon. Like monsoon kind of after Maharashtra, it kind of stalled. And for the
13:29month of June, there was overall 11% drop. And during our member survey, we could understand
13:36the walking inquiries in two-wheeler dealership, due to heat wave, there was a drop of 13%. And in
13:42passenger vehicles, there was a drop of 15%. The maximum conversion that a dealership gets
13:49is from walking inquiries. So, all these drops definitely led to lower customer inquiries and
13:56hence lower retails. The kind of customers also postponed retails during these times. And plus,
14:04the engagement of many customers during the election time, their involvement in election
14:10duties and whatever, that has also resulted, taken a toll on overall retails for the month of June.
14:19Mr. Singhania, thanks so much for joining us today. I just wanted to get into a bit more
14:24detail of what you just spoke, especially for the rural sales. Because in this month,
14:29we have seen generally June being a very slow month for the auto sector,
14:33because of sometimes delayed monsoon as well as other factors. But what's interesting in this
14:39particular month was that sales for someone like Maruti Suzuki as well as Hero Motor Corp
14:45were quite high. And even in the monthly data that they have reported, it seems like they are
14:51building up inventory further as well, because we've seen the highest growth in terms of them.
14:56What are you seeing on the ground specific to these two companies and not just these two,
15:01just to the sector of the rural space? How are you seeing, you mentioned about the walk-ins part,
15:07but we've seen this particular trend. Is there something that you can see on the ground as well
15:11for the same? So see, Maruti has continued to maintain market share. I won't say there's a
15:18number growth. They are averaging around between 40 to 41% market share. And Hero asset, they have
15:24lost market share. When we transited to OBD2, Honda motorcycles were not able to ramp up their
15:35production for OBD2 compliant vehicles. Now, last two, three months, we are seeing their
15:42numbers are being pushed and they had lost market share because of non-availability of vehicle.
15:48Their normal market share used to hover around 25%. Now, for the last two months, we have seen
15:53that they are regaining their market share. So the advantage that the Hero had with the absence of
16:01Honda products in the market, that Hero is losing kind of right now. But yes, definitely,
16:08as you know, Maruti and Hero board would be very critical for the, you know, if the rural
16:15market revived, these two companies would be the most benefited. Why we also say that we are
16:23cautiously optimistic and, you know, we are kind of seeing a rural revival happening. Since last
16:30festivals, we have seen a steady growth in rural market and rural has been pumping up numbers
16:37steadily month over month. Plus, government has additionally, for the Kharif crops, they have
16:44given an additional increase MSP of almost 35,000 crore that would be brought back in the market.
16:52Plus in the month of July, now we have kind of, you know, the entire country is covered with
17:00monsoon, which is now ahead of schedule. So all this would be very critical in getting the right
17:05quantity and quality of Kharif crops across India. What is very important is the IMT also projected
17:16above average monsoon of 106%. As we know, all this can lead to flooding in some states
17:24that can really dampen the spirit of rural market. Otherwise, if all things are placed
17:30and with the right kind of schemes and new model launches coming up and the
17:35proper monsoon evenly spread and the increase MSP, we do see a good revival or good advantage
17:44of rural market coming festive season. So I think the two wheeler space is something that
17:49we'll be definitely watching out based on the monsoon prediction also the IMT has made.
17:53But with that, we're completely out of time on this edition of the Small and Mid-Cap show. It's
17:58all that we have on the show for now. Stay tuned for more news and updates on NDTV Profit.