Cement stocks bounce back on hopes of revival in demand

Suresh P Iyengar Mumbai | Updated on June 03, 2020 Published on June 03, 2020

Uncertain future is a big drag, caution analysts

After the sharp fall amid the Covid-19 pandemic, cement company stocks have recouped most of their losses despite the persisting uncertainty over demand revival and timely onset of monsoon.

The rally in stock prices was largely due to restocking by cement dealers amid tight production and cost control by cement companies. Most companies have hiked prices too.

Cement companies had restarted production in mid-April after the countrywide lockdown announced by the government on March 23.

The market cap of UltraTech jumped 22 per cent to ₹1.11-lakh crore on Wednesday from ₹92,375 crore on April 7, while that of Shree Cement climbed 27 per cent to ₹78,261 crore (₹59,097 crore).

The rally continued on Wednesday, with UltraTech gaining 1 per cent to ₹3,856, while Shree Cement moved up 2 per cent at ₹21,690. However, LafargeHolcim group companies ACC and Ambuja Cement slipped on Wednesday.

Sequentially better

Though overall industry volumes are expected to decline by double-digits in May, it would be much better than April. Cement companies had hiked prices by ₹10-25 a bag across regions in May with the maximum increase coming from the rural region, which had shown signs of recovery.

However, market experts have refrained from extrapolating the pick-up in May demand as full recovery of the sector, which is facing hurdles on account of Covid-19.

Krupal Maniar, Research Analyst, ICICI Securities, said effective decline in capacity utilisation is unlikely as most planned capacity expansions are either delayed or deferred. The pan-India capacity utilisation of cement companies has dropped to 65 per cent.

Trade now constitutes 80-90 per cent of volumes, compared to 65-70 per cent pre-Covid-19. With likely gradual phasing out of the lockdown, urban demand and non-trade demand (including from government orders) will likely improve slowly, going ahead. The industry is facing multiple challenges, including non-availability of labourers, truck drivers to move goods, and above all, the fear of Covid-19 spreading among labourers.

Published on June 03, 2020
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