Cement stocks have managed to withstand the market mayhem witnessed in the markets on Thursday mainly on the recent price hike implemented by major producers.
Considering that the market has fallen 700 points, cement stocks have fared much better with Shree Cement gaining 1.65 per cent to Rs 1,849, while ACC and UltraTech Cement closed marginally down by 0.55 per cent and 0.46 per cent at Rs 1,067 and Rs 1,161 respectively.
Some of these stocks were battered in the last one month and are trading at attractive levels currently and are the most sort after till recently, said an analyst.
On Wednesday, ACC gained four per cent to Rs 1,073 from its weekly low of Rs 1,030, while Ambuja Cements and UltraTech Cement were up six per cent each at Rs 149 (Rs 141) and Rs 1,164 (Rs 1,103). Shree Cement was up 10 per cent at Rs 1,820 from its weekly low of Rs 1,650.
DEMAND LOOKING UP
Cement companies recently hiked prices on an average by Rs 4-5 for a 50 kg bag with the central and northern region seeing the highest rise of Rs 12 a bag and Rs 9 a bag.
The sharp increase in cement prices was attributed to demand from large dealers who were stocking up in anticipation of pick up in demand during the festive season. A lot of new real estate projects are launched during Navratri and Diwali with builders offering attractive discounts to woo home buyers, who were put off by the rising interest rates, said an analyst.
Dealers expect cement sales to improve with the monsoon close to an end. The demand in the rural areas is set to improve as good monsoon will better farmers' earnings, said a cement company official. Besides, farmers' realisation for their produce will also be higher compared to last year as the Government had marked up minimum support price for most commodities, he added.
RAW MATERIAL CONCERN
Despite the price hike, cement company earnings may still remain under pressure as they may not be able to pass on the entire rise in operational cost till there is a substantial evidence of revival of infrastructure projects.
Mr Ajit Motwani, Research Analyst, Emkay Global Financial Services, said, “though there are some anecdotal evidences such as better monsoon helping rural cement consumption, awarding of road projects and construction activity of metros boosting cement demand, we are yet to see structural demand drivers in place.”
Hence a solid demand pick remains a key trigger to sustain the ensuing seasonal price uptick, he added.
The all India cement sales were down five per cent at 1.36 million tonnes in August compared to 1.44 million tonnes registered in July, according to the Cement Manufacturers Association.
After a sharp fall of Rs 40 a bag from its yearly highs, cement prices in the central region was hiked by Rs10 a bag in the last one week in anticipation of pick up in demand. Though demand in the southern region continues to remain sluggish, pricing discipline followed by cement producers has managed to sustain prices at almost same levels with discounts being withdrawn in few states, said a dealer.