The Hindu Business Line : Cement stocks firm after price hike

CEMENT stocks were in the forefront among market movers today as the demand for the commodity continues to be strong in the beginning of the new construction season, despite a recent Rs 5 per bag (50 kg bag) average price rise the Mumbai market.

ACC was up 3.32 per cent at Rs 477. The stock has recovered by about 6 per cent since November 1. Grasim Industries moved up 3.19 per cent to close at Rs 1,258. The counter has gained around 12 per cent in the last one week.

India Cements and Gujarat Ambuja after today's gains recorded a total appreciation of about 9 per cent and over 5 per cent respectively in the past week.

Industry insiders claim that the market is ready to accept a price hike across the regions. Mr A.K. Jain, Executive Director, Marketing, ACC, told Business Line that extended monsoons in October may have marginally reduced the average growth in demand of 10 per cent.

Except for Tamil Nadu, which witnessed unusual rains recently, the demand is expected to pick up in the next 10 days. The increase in power and transport costs is likely to be neutralised by the rise in product prices and increase in demand, Mr Jain felt.

Power and fuel costs account for 33 per cent of the total production cost of cement, while freight another 21 per cent.

According to industry analysts, inadequate capacity additions have put sustainable pricing power in the hands of cement manufacturers in view of growing demand from construction and infrastructure sectors. The current capacity utilisation level of over 90 per cent, is up from last year's 85 per cent. It is expected that the industry would end the fiscal with 94 per cent capacity utilisation.

The projected total incremental capacities addition of 20.6 million tonnes through greenfield and brownfield projects by March 2007 would fall far short of the growth in incremental demand.

According to Mr Rajesh Agarwal of CD Equisearch, the second half should be better than the first half, which weathered the monsoon onslaught and rise in input costs.

According to Mr Deepak Jain of Anagram Stockbroking, the undertone for the sector is bullish for next 2-3 years. "Large companies are better placed as they are expected to benefit from increase capacity utilisation, economies of scale and wider costs spreads. Some small companies would be benefited from restructuring," he added.

At today's closing prices, Gujarat Ambuja traded at 19 times its expected FY06 earnings, while ACC at 17 times and small-size company Shree Cement was available at 12.5 times, he observed.

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