The Hindu Business Line : Cement stocks turn weak on fear of some harsh measures

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Mumbai Feb.23 Cement stocks are getting jittery ahead of Budget 2007-08. Once the darlings of the market, cement company stocks have been receiving a drubbing from investors as they feel the Government may take some harsh measures to rein in the runaway retail prices.

Cement prices have come under the Government scanner in the recent past, and even attracted the attention of the Prime Minister, Dr Manmohan Singh.

There were strong but unconfirmed rumours in the market that the Government may consider moves such as banning of exports and raising of excise duty on the commodity.

"India is likely to export about nine million tonnes of cement by financial year ending March 2007; and, given the strong global demand in FY 2007-08 exports are estimated at around 10 million tonnes. If at all there is a ban on cement exports it will be an extreme measure as cement is not an essential commodity," said Mr Hitesh Agarwal, senior research analyst, Angel Broking.

If the Government bans cement exports, prices may fall in Gujarat and Maharashtra as most of the exports happen through western India.

The Government had recently allowed duty free imports of the commodity (although the country has not imported cement in the recent past).

Among cement stocks, the steepest fall was seen in Birla Corp, which fell 15.15 per cent to Rs 252.3 on Friday against Rs 291.4 a week ago.

ACC dropped 10 per cent to Rs 915.65 on Friday from Rs 1,017.55 a week ago.

India Cements also shed 10 per cent at Rs 184.30 against a week-ago price of Rs 204.90.

"There are fears that the Government may hike excise duty on cement, which is likely to put pressure on companies' bottomlines.

Even if that happens, how much of the excise hike can be passed on to customers is a big question mark," said a cement analyst.

Attributing the fall in stock prices to high valuations, Mr Agarwal said "Realisations from the capacity expansions undertaken by cement companies are likely to happen from last quarter of FY 2007-08, which is likely to bring down retail cement prices by default as there is no major jump in demand expected. A correction in cement stocks was expected but the quantum of fall needs to watched".