Cement stocks drop in a weak market; Ambuja, ACC, Nuvoco slide up to 9%

Shares of cement and cement products companies were under pressure in Wednesday’s trade as they fell up to 9 per cent on profit booking.

Shares of Ambuja Cements, ACC, Nuvoco Vistas Corporation, JK Cement, JK Laksmi Cement, Prism Johnson, Birla Corporation, HeidelbergCement India, India Cements and Shree Cement were down in the range of 4 per cent to 9 per cent in Wednesday's intra-day trade. In comparison, the S&P BSE Sensex was down 0.41 per cent at 59,474 points, at 11:53 am.

Despite of Wednesday's fall, most of the cement stocks have outperformed markets in the past one month, on consolidation hopes in the cement industry after Adani group’s acquisition of Holcim’s stake in ACC and Ambuja Cements. In comparison, the S&P BSE Sensex was down 0.38 per cent, during the same period.

Among individual stocks, shares prices of JK Lakshmi Cement, India Cements, Ambuja Cement, and Nuvoco Vistas Corporation soared up to 37 per cent in a month.

Earlier, the Adani family acquired all of Swiss cement major Holcim's 63.11 per cent stake in Ambuja Cement, which has 50.05 per cent interest in ACC, along with Holcim's direct stake of 4.48 per cent in ACC for $6.4 billion in cash. Further, they also announced that they would invest Rs 20,000 crore in Ambuja Cements to increase their stake. CLICK HERE FOR MORE DETAILS

That said, in the last five years, shares of ACC and Ambuja Cement traded at a significant discount of 30 per cent to 20 per cent discount against peers, due to lack of growth focus. However, valuations of both Ambuja Cement and ACC were re-rated by 65 per cent and 25 per cent, respectively, versus the five-year average, on the back of renewed prospects of group synergies under a new owner, said analysts.

That apart, analysts at ICICI Securities believe that a healthy demand outlook for the cement sector along with drop in coal/pet coke prices will improve operational profitability. However, they expect the second quarter of this fiscal to challenge on seasonal grounds and higher power or fuel costs.

“While the near-term sector stock performance would be driven by the spread between fuel prices and cement prices, we believe the risk-reward remains favorable in the medium term as margin expansion will be led by lower costs and increased consolidation. We reiterate our 'positive stance' on the sector,” analysts at Antique Stock Broking said in a recent report.