The delayed monsoon is leading to continuity in construction activities, price rise in several pockets of the country and expectations of better performance in the April-June quarter, stoking positive sentiments on the cement counter. Cement stocks bucked the trend on Monday, when benchmark indices remained weak and closed in the red.
In the first two months of the quarter, the industry's sales posted robust growth of 9.6 per cent and analysts said June would see the momentum continue, as the monsoon delay helped construction go on.
Holcim-owned Ambuja Cements reported a rise of 7.3 per cent in its June sales. However, its sister concern, ACC, posted merely a 2.6 per cent rise in sales for the month.
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|Share price closing on Monday Source: Bombay Stock Exchange
However, cement stocks zoomed. For instance, the shares of north-based JK Cement jumped close to 10 per cent. Those of Prism Cement, a central India-based company, moved 8.5 per cent up. JK Lakshmi Cement witnessed a surge of over four per cent in its shares, whereas counters of ACC, Shree Cement and India Cement gained between three and four per cent on the Bombay Stock Exchange (see table).
Moreover, during the quarter, despite some volatility, the average all-India price for a 50-kg bag was around Rs 300. “Higher prices and robust sales will help cement makers in better profitability during the June quarter, despite increasing cost pressures,” said the vice-president of a domestic brokerage firm which tracks cement and construction.
"We estimate that June will see sales growth in line with the previous month," adds the research head of a Mumbai-based brokerage. In May, the sector's overall sales were 13 per cent higher at 20.2 million tonnes against 17.9 mt in the corresponding month last year.
Another factor which helped cement prices firm up in June was the yearly maintenance tasks all manufacturers undertake during the June-August period. “This automatically squeezes the supply side and, amid high demand, prices surge,” explains the vice-president cited earlier.
According to market participants, the buzz of Holcim taking over JK Cement pushed shares of the latter. Interestingly, two years earlier, a similar market rumour involving these two entities had helped JK Cement gain on the exchanges.
All said, it seems, markets have shrugged off the heavy penalty imposed by Competition Competition of India on cement manufacturers last month. Eleven firms, including ACC, Ambuja, UltraTech, Lafarge, India Cement and Madras Cements, were collectively slapped a fine of Rs 6,300 crore. However, cement counters have not shown much of a down trend since then. Rather, they have moved northwards.
“Since all companies have said they will contest CCI's verdict, there is a general sense that the issue will drag for long,” said a market participant.
India's cement sector is the world's second largest, with an overall production capacity of 330 mt per annum. The top five manufacturers — including UltraTech, ACC and Ambuja —have close to half the market.