Budget fires cement stocks but analysts sceptical of duration

Since the Budget, cement stocks have outperformed the benchmark market indices. Positive expectation from a hitherto under-performing sector made its stocks gallop as much as 10 per cent in the past three weeks.

Riding on the back of a significant rise in prices of the building commodity, coupled with a rise in sales volume, industry experts expect better quarterly results on a sequential basis. Shares of Swiss major Holcim-owned Ambuja Cements closed 11.4 per cent up on Tuesday, at Rs 131.45 against Rs 118 a share on February 28. Similarly, shares of Aditya Birla Group’s UltraTech Cement were up 10 per cent; those of Jaiprakash Associates and Shree Cement were up nine and seven per cent, respectively. During the same period, the Sensex gave a meagre return of less than one per cent.

The National Stock Exchange’s equivalent, the while CNX Nifty, was up 1.5 per cent.

During the past three weeks, cement makers have raised prices by around Rs 30 for a 50-kg bag. Immediately after the Budget, prices were raised by around Rs 10 a bag, and then by another Rs 20, taking the average national price to as high as Rs 285 a bag. Jagannadham Thunuguntla, strategist & head of research at SMC Global Securities, says, “The surge in cement shares has largely been on the back of rising prices amid construction gaining momentum. However, it is uncertain whether such an outperformance would continue.”
 

DOMESTIC SALES
Companies*	28-Feb	22-Mar	Change  (%)
Ambuja	118.00	131.45	11.39
UltraTech	929.70	1022.00	9.92
JP Associates	77.50	84.70	9.29
Shree Cement	1729.70	1871.00	8.16
India Cements	85.90	92.00	7.10
INDICES
Sensex	17823.40	17988.30	0.92
CNX Nifty	5333.25	5413.85	1.51
* All figures in Rs  per share of companies

Other analysts agree. “Most of the input cost pressure has been taken care of by the recent hikes in cement prices. The additional price rise seen recently will help the companies post better bottom line growth on a sequential basis,” says a research head at a Mumbai-based domestic brokerage.

According to observers, on a year-on-year basis, the Ebitda (earnings before interest, taxes, depreciation and amortisation) margin per tonne would be on the lower side, as in the previous corresponding period, companies did not face higher input costs. “Till the cement companies maintain the current prices, shares are likely to remain firm. But we are of the view that once the peak season for demand is over, the stocks will lose the gains,” says an analyst at a domestic rating agency.