The Hindu Business Line : Consolidation prospects — Second-rung cement stocks move up 100-400 pc

THE second-rung cement stocks have consolidated their position during the current fiscal, moving up between 100 and 400 per cent on the bourses even though cement offtake in the market place has not grown much during this period.

The price performance of the OCL India stock has been the best among the smaller players in the sector. It gained more than 400 per cent from a 52-week low of Rs 47.70 recorded on May 5 and touched a year's peak of Rs 249 on December 23 on the BSE. Today, it closed at Rs 247.35.

The Shree Cement counter has moved up by 200 per cent from its low. Other mid-cap stocks such as Birla Corporation, Gujarat Sidhee Cement, Mangalam, Mysore Cement, Andhra Cement, India Cements and Panyam Cements have improved by 100 per cent to 400 per cent. According to Mr D.P. Poddar of Poddar Investment Services, Prism Cement, still in red, has been registering huge volumes and posting gains in the stock market.

Interestingly, top cement stocks such as ACC, Gujarat Ambuja, Grasim and L&T moved up by 21 per cent, 32 per cent, 66 per cent and 89 per cent respectively between August 1 and December 26.

In terms of volumes, the Prism Cements counter outperformed others including ACC, Ambuja Cements and Grasim during the August-December period on the Bombay Stock Exchange.

During the last five months, the Prism counter recorded a traded quantity of around 700 lakh shares on the BSE. While the ACC stock attracted some 20 lakh shares less than that of Prism, the Ambuja Cement stock underperformed by around 50 per cent compared to Prism. The Grasim stock was way below in the volumes chart, recording just 170 lakh shares between August 1 and December 24."There is a clear disconnect between the trading volumes of a cement stock and the cement dispatches of the smaller players," according to Mr R.P. Gupta, Managing Director of Shiva Cement.

The trading statistics on the BSE since August show that in August all the counters had attracted better volumes.

However, the India Cement, Prism Cement and Birla Corporation stocks recorded handsome volumes in November also. The Century Textiles and ACC counters also clocked good trading quantities in October and September respectively.

What is driving the cement stocks? According to analysts, prospects of consolidation - takeover or merger - seems to have been the sustained trigger for the small and mid-cap cement stocks.

"Investors who have an appetite for high risk and patience may reap benefits form the smaller cement stocks as consolidation is on the cards in the future," Mr Poddar felt.

Mr Gupta also felt that consolidation among the smaller players in the fragmented domestic cement sector is a distinct possibility. "Some of the foreign players are waiting for domestic demand to pick up to the level which can justify a price of Rs 3,500 per tonne of installed capacity, often quoted for the smaller players."

He felt that demand for cement has not picked up partly because of the big infrastructure projects - particularly the road projects - have been facing roadblocks.

"Demand in the housing sector was somewhat affected because rains in some parts of the country in September and October postponed construction activity which was followed by inauspicious months", he felt.

In anticipation of better demand prospects in the near future, some of the companies, such as Birla Corporation and OCL India, have planned capacity expansion to achieve better economies of scale.

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