Stocks

Concrete gains for cement stocks on hopes of demand revival, price hike

Suresh P Iyengar Mumbai | Updated on October 14, 2020 Published on October 14, 2020

Production discipline may salvage Q2

After lying low for long, cement company stocks have found favour with investors who are hopeful of a revival, considering the government’s focus on infrastructure development.

Ambuja Cementhas been hitting new highs for the past three days. It touched 52-week high of ₹249 on Tuesday, but closed lower at ₹241.80. The stock, which has rallied by ₹24 so far this month, on Wednesday closed with a gain of two per cent at ₹247 .

ACC and UltraTech Cement were up 2 per cent each at ₹1,550 and ₹4,456, respectively. Most other cement stocks too ended in the green on Wednesday and have scored handsomegains in the last one month.

PAT to remain flat

Most cement companies are expected to report a flattish growth in profit during the September quarter largely due to lower raw material and operational costs. However, a sharp fall in demand remained a concern in the September quarter.

Cement sales in north and east-based companies improved, while it may remain weak in south and central region reporting 15-20 per cent fall in demand. In fact, south-based companies Ramco and India Cements are expected to see volume decline of 10 per cent and 25 per cent respectively, said Amit Murarka, Research Analyst, Motilal Oswal.

The western region, including Maharashtra and Gujarat, was the most-affected due to Covid-19 . The demand in Maharashtra declined by 25 per cent due to shortage of migrant labourers, weak urban real estate demand and drop in infrastructure activity. Prices in the region were flat at ₹338 a bag. Prices in the southern region, including Andhra Pradesh, Telangana, Tamil Nadu, Karnataka and Kerala, were up by about ₹50 a bag to ₹390 a bag due to production discipline followed by cement companies.

 

Aided by government spending and availability of labour, cement demand in the eastern region was the highest while prices fell marginally due to excess supply. The central and northern regions prices declined by 2 per cent to ₹350 a bag, with Madhya Pradesh and Uttar Pradesh reporting a sharp decline in prices.

Though variable costs have increased due to 17 per cent mark-up in petcoke and 12 per cent hike in diesel prices in September quarter, lower spending on sales promotion, travel, rent and repairs led to drop in fixed cost boosting the industry’s Ebitda by 20 per cent, he added.

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Published on October 14, 2020
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