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Suresh P. Iyengar

Mumbai, Sept. 22 The firm decision by cement major ACC to pass on the rise in input cost to consumer boosted cement company stocks in Bombay Stock Exchange on Monday.

ACC gained 3.22 per cent to Rs 624, while Grasim Industries was up 1.04 per cent to Rs 1,937. Other cement company stocks reversed its downtrend and closed marginally up.

Mr Sumit Banerjee, Managing Director, ACC, went on record that the company recently hiked prices in Maharashtra, south and east markets. “We will have to up prices further. It is imperative for ACC to raise prices to rein in fall in margins,” he added.

However, he declined to comment on the quantum of hikes.

The Government was exerting pressure on cement companies to hold the price line in a bid to rein in the spiralling inflation.

Despite rising input costs, cement companies obliged but incurred huge losses.

A Holcim group company, ACC had reported 22 per cent fall in net profit at Rs 271 crore in the quarter ended June 30, while turnover was down 3 per cent at Rs 1,822 crore. Sales volume remained flat at 5.29 million tonnes (5.36 mt).

Another Holcim company’s, Ambuja Cements, net profit was down 33 per cent at Rs 577 crore in the June quarter as sales turnover was up 7 per cent at Rs 1,570 crore, reflecting the squeeze in its profit margins.

Cement stocks have corrected the most in the recent meltdown in the stock market. The sector on the whole has shed 30-50 per cent from their recent highs.

In the last one year, ACC valuation is down 35 per cent, Ambuja Cement lost 30 per cent, Grasim Industries declined 28 per cent, Ultratech Cement fell down 29 per cent, Shree Cement is down 51 per cent, JK Lakshmi Cement lost 45 per cent and India Cement came down 26 per cent.

“The universe of cement stocks has corrected much more than what can be justified by a fall in earnings during a cyclical downturn,” said an analyst.

Analysts feel that consolidated nature of the industry will prevent the same impact as it has undergone in the down cycle in the financial year 2003.

ACC and Ambuja Cement were not controlled by Holcim and UltraTech was not a part of Aditya Birla Group. “Consolidation among the industry majors and stable economic outlook makes us believe that the repeat of last down cycle is unlikely,” he added.

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