The Hindu Business Line : Cement stocks stay lacklustre despite good Q4 results

Mumbai April 23 Despite the encouraging financial results for the January-March quarter that cement majors reported last week, their stocks remained lacklustre on the bourses, continuing the trend of the past few weeks.

UltraTech, which posted a 76 per cent jump in net profit, to Rs 232 crore, saw its share price dip 3.92 per cent from Friday's close to end at Rs 809 on Monday.

Among the major cement companies, ACC was the only stock to post a marginal gain of 0.67 per cent, closing at Rs 796 on Monday.

India Cements was down 0.53 per cent to Rs 169, Dalmia Cements down 0.70 per cent to Rs 347, and Shree Cement down 0.35 per cent to Rs 1,020.

Gujarat Ambuja Cements (GACL), which was down 0.61 per cent at Rs 114.75, witnessed three block deals of 93.21 lakh shares each on the BSE. The average price of the block deal was Rs 116.05 per share. GACL clocked a total volume of 3.03 crore shares and was the top-traded stock on the BSE with a turnover of Rs 352.55 crore.

Investors have turned bearish on cement stocks ever since the Government prevailed upon the cement companies not to hike prices.

"Adverse developments like the one-year freeze on cement prices and scrapping of import duties on the commodity has come as a harsh blow for the cement industry. While the import of cement in significant quantities is unlikely to materialise owing to logistical and storage limitations, it would nonetheless put pressure on cement manufacturers, particularly on coastal players, to refrain from raising prices," said Mr Hitesh Agarwal, Senior Research Analayst, Angel Stock Broking Ltd.

Flat growth

On a sequential basis, cement companies' revenue and net profit have remained flat. ACC has posted revenue of Rs 1,674 crore for the first quarter ended March 31, 2007, against Rs 1,260 crore in the fourth quarter ended December 31, 2006. However, its net profit at Rs 363 crore was only marginally higher than Rs 358 crore in the last quarter of the previous fiscal.

UltraTech's fourth quarter revenue was Rs 1,466 crore against Rs 1,260 crore in the third quarter ended December 2006. Its net profit in fourth quarter was Rs 231 crore against Rs 212 crore in the third quarter.

Though revenues have grown on a sequential basis reflecting the increase in demand for cement, the companies could not realise proportionately higher profits due to rise in raw material cost and constraints in rising prices.

Market analysts feel that holding the price line artificially at any level is going to adversely impact the bottomline of cement companies, more so when input costs are on the rise. "Cement companies' financial performance was good, and in line with Dalal Street expectations. However, lack of pricing power with cement companies is definitely going to impact the future trend of the sector," said Mr Rajan Kumar, Research Analyst, Networth Stock Broking Ltd.

Contrary to Indian companies' belief that cement imports are impractical, cement from Pakistan, albeit in small quantities, has started arriving at Indian ports. Moreover, huge capacity expansion plans are likely to improve cement supply in the market, thus depressing prices.

"Considering that cement supply (from expansion plans) would start to catch up from calendar year 2008 onwards, we expect prices to come under pressure, and this will have a negative impact on the profitability of cement companies," he added.

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