Date:07/08/2008 URL: http://www.thehindubusinessline.com/2008/08/07/stories/2008080751851400.htm

Back Sentiment turns positive for cement stocks

Suresh P. Iyengar

Mumbai, Aug. 6 After being battered for sometime now, cement company stocks in the BSE seem to have attracted investors’ fancy in the last one month. Expectations of a possible hike in cement prices post-monsoon and a marginal fall in prices of coal — one of the major raw material for cement production — have boosted investor sentiment.

On Wednesday, ACC rose 3.48 per cent to Rs 638, UltraTech gained 3.31 per cent at Rs 633, India Cement went up by 4.34 per cent to Rs 162, Shree Cement was up 3.05 per cent at Rs 646, Ambuja Cement gained 1.03 per cent at Rs 88 and Binani Cement was up 1.38 per cent to Rs 59.

Buying opportunity

In fact, most of the cement stocks were hovering near the 52-week low, before investors spotted a value-buying opportunity. In last one month, ACC jumped 33 per cent, India Cements 24 per cent, Binani Cement 23 per cent, Shree Cement 22 per cent, besides Ambuja Cement and UltraTech are up 18 per cent each. Hit badly by the rising raw material cost, especially imported coal, companies have hinted that they will review the retail prices after the end of the monsoon, when the demand picks up.

However, earlier this month, international coal prices were down marginally, taking a cue from China, which capped prices at the July-level. “Prices in the major coal-producing province of Shanxi stabilised after the price limit were imposed last week. But there are chances that international prices may deviate from the trend in China and move up again,” said an analyst.

Investors have deserted cement companies’ stocks after profit margins were squeezed in the first quarter of fiscal ’09. Companies had voluntary agreed to hold prices as part of the Government measure to cool down the raging inflation.

Strong demand

Buoyed by the strong demand, cement companies have embarked on a massive expansion plans. In the XIth plan period, the industry is expected to have an additional capacity of 118 million tonnes (mt) from the current 200 mt.

“Enthused by the industry performance in the last 15 months, additional capacities of about 90 mt have been announced by different manufacturers. These capacities, according to such announcements, are expected to be commissioned over three-year period, creating an imbalance in demand and supply, resulting in impact on realisation. However, impact be partially mitigated by increased volumes and improved cost efficiencies,” Grasim Industries said recently in its annual report.