Key cement stocks lag Sensex

Leading cement company stocks, such as UltraTech Cement, ACC and Ambuja Cements have fallen out of favour with investors as they underperformed the benchmark Sensex in the December quarter.

Belying widespread expectations, there has been no major pick up in demand post-monsoon as the economy slipped from bad to worse. The growth of eight core sector industries slowed to 1.7 per cent in November against 5.8 per cent in the same month last year. It was down 1.8 per cent in October.

Though blue-chips in the cement sector witnessed a sharp fall, some of their small peers, such as India Cements, JK Lakshmi Cement and Ramco Cements have done well thanks to a strong rally in the mid- and small-cap space.

With GDP growth of 4.4 per cent in the first quarter and 4.8 per cent in the second quarter, only a sharp recovery in the economy can revive the demand for cement. Moreover, major infrastructure projects were delayed, depressing demand for cement.

V. Srinivasan, Research Analyst, Angel Research, said demand from both housing and infrastructure segments continued to remain weak with shortage of sand further impacting construction in many parts of the country during the quarter.

Cement companies hiked prices in the September quarter with an expectation that demand will pick up post-monsoon. However, continued weakness in demand rendered price hikes unsustainable and resulted in prices falling in most parts of the country. There was a further decline in prices in December due to volume push by companies, such as ACC and Ambuja Cements, which follow the calendar year for accounting.

Lower demand notwithstanding, production cost of cement companies remain on the higher side. Though imported coal prices declined 3 per cent in the December quarter, rupee depreciation of 14.3 per cent against the dollar led to imports costing 11.3 per cent more in rupee terms.

While the uncertainty over demand recovery in the next six to nine months remain, the recent Government measure to ease sand supply and better retail demand on the back of a bumper harvest may revive cement demand to some extent.

Teena Virmani, Vice-President (Research), Kotak Securities, said the cement sector may get impacted by lower than expected demand and higher costs.

However, improvement in cement prices along with good monsoon boosting rural cement demand bodes well for cement companies, said Virmani.

On Monday, shares of ACC and Ambuja Cements were down 0.16 per cent and 0.68 per cent at Rs 1,087 and Rs 176, respectively. UltraTech dipped 0.62 per cent at Rs 1,718.

suresh.i@thehindu.co.in