The Hindu Business Line : `Decline in cement stocks provides buying opportunity'

CEMENT stocks have been slipping, in line with the downbeat market sentiment. But analysts feel that the situation has provided an opportunity for certain market players to buy.

According to Mr Deepak Jain of Anagram Stockbroking, cement demand in the home market has grown impressively by 10 per cent year-to-date despite monsoons and floods. Some of the local players were also able to take advantage of the construction boom in West Asia.

"The current capacity utilisation is over 85 per cent for the cement companies and is expected to improve further during the next few quarters. With limited capacity additions, price hikes are also anticipated in the coming months. We expect cement realisations to improve by about 6 per cent during FY06," he said.

Though ACC and GACL July-September numbers have not been up to the market expectations, the medium to long-term business scenario for the sector looks positive, analysts feel.

ACC's operating profit margin declined by 300 basis points due to higher raw material, freight and staff costs. GACL's sales volumes were impacted by floods in Gujarat and Maharashtra.

While its realisations grew by 10 per cent, operating margins were hit due to higher staff costs. Also lower `other income' and higher tax outgo impacted PAT by 16.7 per cent during the previous quarter.

At today's price, GACL traded at 14.4 times FY06 expected earnings.

Large players are expected to benefit from increased capacity utilisation while many small companies would see the benefits of business restructuring in good times ahead.

For some players, Shree Cement seems a good bet among small-sized cement companies, which is trading at 11 times FY06 expected earnings.

According to Mr Rajesh Agarwal of CD Equisearch, in September , 19.9 per cent growth in cement consumption over previous month was a strong indicator for things to come.

"Cement production is expected to record a 9 per cent rise during 2005-06 paving way for strong fundamentals," he added.

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