Date:07/06/2007 URL: http://www.thehindubusinessline.com/2007/06/07/stories/2007060703621500.htm

Back Apprehension of slowdown, import concern weaken cement stocks

Jayanta Mallick

Kolkata June 6 Valuations of cement stocks cracked today as broad sentiment dipped. According to analysts, apprehension over a slowdown in demand growth, forthcoming monsoon season and possibility of increase in import came to the fore and had a short-term negative impact on the valuation perception.

Gujarat Ambuja Cements declined by 1.69 per cent, while Ultratech Cement by 1.95 per cent, Dalmia Cements 2.82 per cent and India Cements by 3.61 per cent. Grasim, however, finished on flat note while recently listed Binani Cement gained 1.87 per cent.

"The overall mood being one of risk reduction and profit taking, investors opted for paring down exposures in cement stocks," felt Mr Ajay Jaiswal of Angel Broking.

A cement sector analyst with an institutional brokerage described today's weakness in cement as more of a sentimental sort than a fundamental one. "Numbers still do not suggest a slowdown in cement demand or a slide in the pricing power the first quarter of 2007-08. Even though the Union Budget made import virtually duty-free, flow from neighbouring countries such as Bangladesh, Bhutan, Pakistan and UAE had not improved much".

No import threat

An industry insider told Business Line that the national average dispatch growth remained healthy at around 8-9 per cent. "The demand and supply gap is yet to be bridged. Imports from Bangladesh and Bhutan continue to be less than 2-3 per cent in the eastern and north-eastern region. Imports in the western and northern regions have not been significant at all," he added.

For imports, there are bottlenecks in the area of quality, infrastructure and logistics, Mr Jaiwal said.

A recent CARE research report said in the Mumbai area, there was a shortfall of around 20 per cent. It felt that import might theoretically be viable near port areas. However, it predicted that the aggregate cement imports are not likely to exceed 2 million tonnes for the whole year. It further said: "if the process of obtaining BIS quality certification gets delayed beyond June, then with monsoon picking up, construction activities will witness sluggishness. Moreover, import of cement in monsoon might not be possible and in turn cement import might not happen before the month of September".

Another report by Motilal Oswal echoed almost the same sentiment. It also said: "Although direct import by bulk consumer (2-3 per cent of total demand) seems viable, cement manufacturers would negotiate with such bulk consumers and offer them discounts to prevent any meaningful imports".