The Hindu Business Line : Price hike fails to enthuse cement stocks

Mumbai, April 2 Despite the recent price hike, frontline cement stocks remained volatile and closed flat on Wednesday. Braving the Government warning, on Tuesday, the cement companies raised prices by Rs 3 to Rs 5 per 50 kg bag across the country, according to a Mumbai-based dealer.

Among the gainers were ACC, up one per cent at Rs 833; Grasim, which hit a intra-day high of Rs 2,679, closed up 0.86 per cent at Rs 2,617; UltraTech gained 5 per cent at Rs 800 and India Cements moved up 2 per cent to Rs 195.

Madras Cements touched a high of Rs 3,305, before ending down one per cent at Rs 3,250, Dalmia Cement lost 0.48 per cent to close at Rs 281 and Ambuja Cements fell 0.08 per cent to Rs 120. Shree Cement lost 1.40 per cent at Rs 1,060, despite reporting a 60.08 per cent rise in despatches at 7.54 lakh tonnes in March compared with 4.71 lakh tonnes logged during the same period last year.

Consumer demand

Cement companies managed to hold their price line during the last two months, even as input costs such as coal and power went up substantially.

“Since April 2007, the input cost has gone up by Rs 17 per 50 kg bag. The strong consumer demand has given an opportunity for the companies to pass on a portion of the additional burden to the customers,” said an analyst.

Most of the cement units were running at full capacity even during monsoon, he added. On the back of robust infrastructure development, demand for cement is expected to grow over 10 per cent. The total capacity of the domestic cement industry is 174 million tonnes per annum (mtpa). It was 166 mtpa last year.

“Though we understand that the upcoming capacities in the cement sector may take an additional quarter to stabilise operations, rising costs may continue to hurt the net profit of companies,” said Kotak Securities research report.

Import duties

Last month, the Government withdrew Duty Entailment Pass Book incentives on a number of products, including cement. This means these companies will not be able to claim drawback of import duties paid on any raw material used for manufacturing the items exported.

For cement companies, coal is the only imported material used, on which they enjoyed a 5 per cent duty drawback. Given that cement export volumes are rather thin, the drawback amount is not difficult for the manufacturers to absorb. To top it all, domestic demand is quite strong, which means the companies need not reduce prices at all, said an analyst.

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