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Cement stocks up on robust sales

Cement
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Double-digit growth at Holcim, boosts industry hopes, but analysts unclear if trend would sustain.

With robust sales from the country's top in November, anticipation of the industry's growth coming back on track has stoked positive sentiment in its shares. At a time when stock markets' benchmark indices gained around four per cent last week, shares of cement companies rose between five and 10 per cent.

Swiss major Holcim-promoted and sold 16 per cent more in the month, more than five times the industry's average growth till October in the current financial year. UltraTech Cement, part of the Aditya Birla Group, also posted a growth in sales volumes of a little over 16 per cent.

PERFORMANCE CHART
SHOWING GAIN IN CEMENT SHARES
Company Close 
price*
One week’s
 
gain
ACC 1,213.55 8.41
Ambuja 160.05 9.13
UltraTech 1,179.50 5,52
Jaiprakash 67.3 10.87
India Cements 75.45 9.11
*As on Friday                                            All figures in Rs/share
Source : Bombay Stock Exchange
SHOWING SALES GROWTH OF TOP CEMENT MAJORS IN NOVEMBER
Company Despatches Growth (%)
Holcim 3.66 15.82
UltraTech 3.09 16.33
All figures in million tonnes                                    Growth is year-on-year
Source : Companies

 

Such a high growth in a single month, when the industry grew by less than three per cent during April-October, is a clear signal that November may see double-digit growth, say analysts. July was the last month when the sector clocked growth of over 10 per cent.

The stock market reacted positively. The shares of Ambuja Cements rallied 9.1 per cent during the period and those of sister-concern ACC gained 8.4 per cent. Northern major Jaiprakash Associates and the South-based India Cements gained, with their shares up 10.8 per cent and 9.1 per cent, respectively.

However, analysts caution that the high growth could also be because of the low base in the corresponding month last year. Last November, the industry's growth trajectory was in negative territory, with sales down five per cent.

"Higher sales in November would augur well for the stocks, as cement prices were at an all-time high of Rs 280 for a 50-kg during the month," said a research head of a Mumbai-based domestic brokerage. During the same period last year, all-India average cement prices were Rs 230 a bag.

Experts said with input costs on the rise, eroding much of the gains of increased prices, one way to increase profitability was to increase volume sales. "Since the latest sales figures are robust, it is likely to help the companies in the December quarter, if the higher sales sustain," he added.

Companies in the sector said demand saw a revival but would not say for how long. The industry had witnessed its lowest growht in a decade, of 4.6 per cent, in 2010-11. If things do not improve from here on, the industry may be heading for another year of poor growth.

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