Cement stocks surge despite buzz of CCI penalty

<p>Shares of cement companies gained unexpectedly on Wednesday, setting aside all speculation in markets that the counter would crack on the back of an expected penalty from the Competition Commission of India (CCI).

On a day when benchmark indices closed marginally up, stocks of top cement makers gained in the range of two to five per cent. Southern major India Cements Ltd led the rally with a gain of 4.64 per cent. It closed at Rs 84.50 on BSE. Shares ACC Ltd and Ambuja Cements Ltd posted gains of 3.5 per cent and 2.7 per cent, respectively.

Jaiprakash Associates Ltd' stocks, too, strengthened two per cent to close at Rs 71.35. Companies like Aditya Birla Group’s UltraTech Cement Ltd and south-based Madras Cements Ltd could not be among their peers. However, they did not correct heavily and lost less than a percentage point.
 

The upward movement came at a time when the monsoon is likely to spread across the country in the next few days and demand is likely to remain subdued till August.

Ambareesh Baliga, chief operating officer of Way2Wealth Securities, an investment consultancy, said: "This buzz of CCI penalising cement makers has been there for long. Market participants were short on the sector in the morning trade, but as news spread that the report may come the next day, the counters saw short covering, which pushed the stocks up."

Allegations of cartelisation are not new for cement makers, the charge they have always been denying. In conversation with Business Standard, top officials had maintained that in an industry where there were more than 50 players, the question of cartelisation never arose.

However, the builders’ association has been critical of the continuous rise in cement prices. Earlier this year, cement prices touched their all-time high of Rs 308 for a 50-kg bag on an average across the country. Reasons cited by companies for price rise include rising demand and increasing input and freight costs.

According to industry experts, there is hope building up that even if a penalty is imposed, cement companies will challenge the order and this could drag the matter for long. Moreover, they add, most of the cement makers are cash surplus and the outlook in the next two-three years looks better, given the capacity expansion the industry took up in the 11th five-year plan.

“Companies have been using sophisticated terms like disciplined approach towards supply. But, they have been decreasing their capacity utilisation,” explains an analyst.

In FY12, the industry's capacity utilisation had dipped to 76 per cent.

Currently, India has a 330-million-tonne cement industry. Leaders like UltraTech, ACC and Ambuja control one-third of the total market.