Cement shares in demand; UltraTech Cement surges 5%

ACC, Ambuja Cement, Grasim Ind, Prism Cement, Birla Corporation, HeidelbergCement India and India Cements are up 2-17%.

Shares of cement majors such as UltraTech Cement, Grasim Industries, ACC and Ambuja Cement are trading higher between 2-5% on the National Stock Exchange (NSE) in noon trades in otherwise subdued market.

Prism Cement, HeidelbergCement India, Birla Corporation, India Cements, JK Cement, JK Lakshmi Cement and Dalmia Bharat are among others up 3-17% on the BSE.

Shares of the country’s biggest cement maker UltraTech Cement has rallied nearly 5% to Rs 2,830 on NSE on reports that the company has decided to drop out of the race to buy overseas cement assets of Holcim & Lafarge. The stock opened at Rs 2,735 and touched a high of Rs 2842 on NSE.

Meanwhile, according to analysts at Kotak Institutional Equities Research, the cement sector outperformed the broader markets over January-March, in seven out of the past 10 years, due to retail price increases that are prominent in the peak construction season.

While valuations of cement stocks remain pricey and earnings projections demanding, we can’t help but highlight the strong correlation between retail price increases and stock performance during this period, said Murtuza Arsiwalla and Abhishek Poddar in a report dated January 1, 2015.

The advent of the peak construction season, coupled with a cramped evacuation infrastructure, usually allows for price increases in the cement sector during this period. High demand and contained supply allow cement manufacturers to take opportunistic price increases. We note that over most periods movement in retail prices is restricted to this three-month period with little change in the rest of the year, said analysts.