The Hindu Business Line : Cement stocks wilt under Government pressure

Mumbai, May 13 Cement stocks on the BSE continued their free fall witnessed through the week, with the Government exerting pressure on companies to lower prices, thereby squeezing the already stressed profit margins.

UltraTech Cement plunged by 11.93 per cent to Rs 668 over the week, India Cement 8.52 per cent to Rs 154, ACC 7.84 per cent to Rs 683, Shree Cement 6.49 per cent to Rs 900, Madras Cement 6.10 per cent to Rs 2,940, Grasim 5.88 per cent to Rs 2,218 and Dalmia Cements moved down by 4.48 per cent to Rs 270.

Export ban

On Tuesday, investors continued to dump their holding in cement companies with ACC leading the losers’ list with a drop of 2.66 per cent, India Cements 2.22 per cent, Shree Cement 2.12 per cent and Grasim lost 1.64 per cent. As part of its anti-inflation measure, the Government banned cement exports, though the country ships less than 3 per cent of the total production. However, prices did come down in the coastal regions, especially in Gujarat, which accounts for 90 per cent of total exports.

“It is not financially viable to transport cement over a long distance. The export ban will bring down prices only in select regions,” said an analyst. In a bid to keep the pressure on, the Union Finance Minister, Mr P. Chidambaram, warned cement companies to reduce price voluntarily.

On Monday, he said “... I have made it very plain, that, if they (cement manufacturers) do not voluntarily cut prices, we are prepared to take administrative measures.”

In response to the Government’s call, cement major ACC recently agreed to hold the price line for three months. Mr Sumit Banerjee, Managing Director, ACC, had said: "While ACC has been taking all steps necessary to ensure that production is maintained at peak levels, the price freeze will erode the company’s margins.”

Viable solutions

During this period, ACC will engage in an open dialogue with the Government to explore viable solutions to combat inflationary trends that have disproportionately increased its input cost.

Shree Cement has reduced the price by Rs 2-4 a bag in North India, by Rs 3-5 a bag in Central India and Rs 7-8 a bag in Gujarat. Mr H.M. Bangur, Chairman, Shree Cement, was on record that “we support the Government’s initiative to control inflation. However, absorbing the rising input cost will result in the margins going down."