The Hindu Business Line : Cement shares jump as Finance Minister denies price control

Cement shares surged on the BSE on Thursday on the back of the Finance Minister’s announcement that the Government would not freeze nor interfere with cement pricing. According to analysts tracking the sector, with inflation easing, the Government has relaxed its stand on cement pricing. Inflation fell to 4.28 per cent for the week ended June 9, 2007.

The stock of ACC Ltd closed up 8.33 per cent at Rs 898.90, while the stock of Gujarat Ambuja Cements rose 7.43 per cent to Rs 125.10.

“The key trigger for cement stocks today is Mr Chidambaram’s announcement yesterday. This is definitely a short term positive for the sector,” said Mr Hitesh Agrawal, senior research analyst, Angel Broking.

Stable price

Cement prices have largely been stable except for the southern states where they had increased Rs 15-Rs 20 for a 50-kg bag. In the Northern and Western regions, the price is around Rs 240 a bag.

“Stocks of companies such as India Cements, Mysore Cements and UltraTech Cement are looking strong,” said Mr Agrawal.

The stock of India Cements rose 10.62 per cent to Rs 206.20, while UltraTech and Mysore Cements rose 8.33 per cent and 5.72 per cent respectively.

Earlier, the Commerce Minister, Mr Kamal Nath had agreed with cement companies that the Government would freeze the prices of cement even if the costs go up. Now, Mr Chidambaram has said that there will be no such freezing of prices.

“However, right now during the monsoons, it is unlikely that prices will increase. Prices will only increase after August. However, prices do not look to go up in the Western and Northern region as prices are already up to Rs 240 a 50-kg bag in those regions and if prices go beyond Rs 250 a bag, there is an additional excise duty,” said Mr Agrawal.

In the Union Budget 2007-2008, there was an attempt to introduce a dual tax structure. If the MRP exceeded Rs 190 per 50-kg bag, then the excise duty on cement (for large players) stood increased from Rs 400 per tonne to Rs 600 per tonne.

Since the introduction of price control measure by the Government, cement stocks had been taking a beating in the market.

According to Mr Agrawal, this announcement is a short term positive for the sector, however, in the longer term, (from FY ’09) cement stocks may become a risky bet as there is considerable cement capacity coming up.