The Hindu Business Line : Cement stocks outdo Sensex

While the Sensex declined 7 per cent till date, leading cement stocks have delivered an over-20-per-cent return. The stock of UltraTech Cement is up 20 per cent, Shree Cements is up 32 per cent, Grasim Industries is up 21 per cent and ACC is up 14 per cent so far this year.

There has been significant amount of mutual fund buying in cement stocks. Though a few funds did book profits in stocks like Grasim Industries and ACC at higher levels, many funds added cement stocks to their portfolio in February. UltraTech Cement and ACC were MF favourites, where the shares accumulated rose 27 per cent and 20 per cent respectively in February.

Why this sudden spurt in interest towards cement stocks? Two reasons probably explain this. One, the higher volume despatches and higher price realisations for players over the past two months. Two, decent demand prospects on the back of the increased infrastructure spending by the government to stimulate growth.

Despatches strong

The cement industry has been recording a significant increase in despatches month after month since November. That continued into February. Among regions, the northern sector saw the steepest increase in despatches in February. Reports suggest that despatches rose by 18 per cent in north, 13 per cent in the east, 8 per cent in south and 4 per cent in the west.

The demand growth follows higher infrastructure spending by the Government following measures promised in the stimulus package. Also, as interest rates have head south, the several delayed housing projects have resumed, say players.

Prices, which are key to margin growth, have also seen a good Rs 8-9 per bag increase in February, more than making up for earlier price reductions. In December last year, the Government had cut the excise duty on cement by 4 per cent. Following this the cement manufacturers reduced prices in the range of Rs 4-6 per bag. The increase in prices in the last month is said to be triggered by the tight supply situation in some regions.

Pressure easing

Coal – the major cost component for cement companies – has also eased off significantly. From the peak $190 a tonne in July last year, coal prices dropped to $91 in November and have dipped further to $75 currently. The major coal importers within the cement sector – UltraTech Cement, Ambuja Cement and India Cement – may be major beneficiaries.

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