According to Central Statistical Organization (CSO) data, domestic production of Asbestos Cement Corrugated (ACC) sheets in FY05 increased by 18% to 15.92 lakh tonne. This has been the highest growth since FY95. In the month of April'05 the production of Asbestos Cement Corrugated (ACC) sheets increased YoY by 25% to 1.44 lakh tonne while that in the month of May the production in ACC sheets increased YoY by 16% to 1.45 lakh tonne. For the two months April- May'05 the production was up by 20% to 2.89 lakh tonne.

Asbestos sheets are emerging as a cheaper alternative to galvanised steel sheets due to increasing steel prices. The price differential between that of asbestos sheets and galvanised sheets (of the standard 1mm x 1mm running size) was as high as Rs145 in the month of April 2005 but the difference has slided down a little to Rs 120 in June due to fall in steel prices. However, the difference in pricing still remains very high and this has resulted in an increase in demand for the asbestos sheets from the rural housing which consumes 70% of the corrugated sheet demand. Secondly, continuous thrust being given by the government for the development of infrastructure, particularly rural housing and expansion of industrial capacities being experienced due to growth of the economy augurs well for the asbestos roofing industry. Further increased demand from the industry and rural areas would boost the industry’s revenues and margins. Increased emphasis by the government in this year’s budget to construct 60 lakh additional houses for the poor in the rural areas would give a philip to the asbestos sheet industry.

In the industrial segment (which forms about 30% of the total demand) asbestos sheets are preferred over galvanised steel sheets due to better heat resistance and anti-rust qualities. Thus, with ongoing expansion plans of the industry and improved infrastructure thrust we expect the asbestos cement sheet industry, which is growing above 10% for the last 5 years to grow at 10%-15% over the next two-three years.

Companies expanding capacities and looking for newer product line

In order to meet up with the increasing demand coming from housing and industrial segments the industry is scaling its capacities. As transport cost is significant in the industry due to fragility of the product, the players are setting up their units where the demand potential is high. All the major players are looking for having an all India presence. Ramco Industries is setting up a 0.80 lakh tpa unit in West Bengal, which would increase its capacity to 4.43 lakh tonne. This would give the company an exposure to the eastern and northeastern markets. Likewise, Hyderabad Industries is planning to increase its production capacity by mordernisation & capacity expansion to retain its national market share and leadership position in the industry. Similarly Visaka industries, in order to gain presence across India is expanding its capacity in Rai Bareli, UP by 1.20 lakh tpa to 4.60 lakh tpa .

According to the companies contacted, the present increase in supply would suffice the expected increase in demand for FY2005-06. However, excessive increase in capacity by the players could put margins under pressure in FY06-07.

Everest industries have entered into manufacturing of polypropylene fibre cement based non-asbestos sheets and cement boards, which have better markets in urban areas and export markets. The company has tied up with M/s Dansk Eternit, Denmark, a 2-billion Euro company, for implementing a compressed board project with an installed capacity of 40,000 metric tonne per annum (MTPA). Dansk Eternit has agreed to buy back 25% of the production; this would lead to a significant jump in the company's exports in FY2006.

Aggregate Results

Net sales on an aggregate basis of 7 companies for the quarter increased by 13% to Rs 417 crore. Operating profits increased by 52% to Rs 82 crore while OPM increased by 520 bps to 19.7%. Aggregated net profit for the 7 companies, which have reported their results, increased by 62% to Rs 47, crore while cash profits increased by 53% to Rs 58 crore.

Net sales for Hyderabad industries increased by 11% to Rs 131.82 crore while OPM increased by 895 bps to 21.5% on account of decrease in cost of raw materials and staff cost which as a percentage of sales has gone down by 630 bps and 180 bps to 43.5% and 34.9% respectively. Interest cost was down by 53% to Rs 1.42 crore while other income decreased by 21% to 0.87 crore. PAT for the quarter before prior period tax increased by 116% to Rs 14.19 crore.

Everest Industries net sales declined by 3% to Rs 71.15 crore however the company was able to post a 390 bps increase in OPM to 21.7% on account of reduced costs. Raw material cost as a percentage of sales decreased by 420 bps to 44.5% while selling & administrative cost as a percentage of sales declined by 107 bps to 10%. Interest cost increased by 183% to Rs 0.17 crore. However, PAT for the quarter increased by 24% to Rs 9.31 crore.

Outlook

The asbestos products industry is about 2.4 million tpa in India and the demand is expected to witness a growth of 10% -15% for the next 2-3 years as the rising income and improving standard of living in the rural areas would result in increasing demand. We are positive about the cement products sector.