Cement stocks crack as rains spread, sales dip

After hitting all-time high, shares lose 5-17% of their values

After a continuous rally, shares of cement companies have started showing cracks. Rains and poor sales in August by cement giants ACC and Ambuja have taken a toll on the cement counters.

A majority of the stocks, which had hit their all-time highs recently have shed between 5 and 17 per cent over the last one month. And several of them declined in the last one week.

The shares of Jaiprakash Associates, a dominant player in the north-central part, lost 17.3 per cent during the period to close at Rs 65.40 on Tuesday against its monthly high of Rs 79.10. Similarly, shares of JK Cement, another company active in the region, fell over 15 per cent.

CEMENT STOCKS CRACK
Company	Recent high	4 Sept*	Change (%)
Jaiprakash	79.10	65.40	-17.32
JK Cement	244.45	206.50	-15.53
Shree Cement	3,674	3,330	-9.37
Ambuja	197.25	181.55	-7.96
JK Lakshmi	101.40	95.00	-6.32
UltraTech	1768.95	1,672.40	-5.46
ACC	1,370	1300	-5.11
Madras Cements	191.70	182.55	-4.78
* Closing price; Share prices in Rs  Source : Bombay Stock Exchange

According to analysts, there is an apprehension of price cuts and expected discounts from cement majors to push their sales. "This is being reflected on the cement counters," says the research head of a Mumbai-based brokerage house.

All-India average cement prices, which hit an all-time-high in mid-July at Rs 314 for a 50-kg bag, have declined over five per cent since then. The current retail price stands at Rs 295 a bag. Experts say in September there could be a further fall in the range of Rs 5-10 per bag.

According to dealers, the offtake in late August was hit by an expected fall in prices as rains intensified.

Normally, during the monsoon, cement stocks tend to trade weak as companies lose their pricing power amid demand slowdown. This year too, cement shares moved northwards as long as there was deficient rainfall.

Further, both the companies of Swiss major Holcim — ACC and Ambuja — did poorly in terms of sales in August. ACC reported a decline of 6.92 per cent in its dispatches at 1.75 million tonnes (mt) against 1.88 mt in the previous year corresponding month.

Ambuja, however, did comparatively better as its sales dipped 2.36 per cent to 1.45 mt, compared with 1.48 mt in the same month last year.

Holcim controls a little less than one-fifth of India's cement market. "The trend, which the Holcim group of companies showed, is likely to be echoed by the industry. This is not spelling good for cement shares," added the research head.

A June order by the Competition Commission of India barred the Cement Manufacturers' Association from collecting sales and production statistics as the watchdog alleged cartelisation among players.

Analysts said the current weakening in the shares might be around for another four-six weeks before the peak construction season picks up once the festival period is over.

India's cement market is the world's second largest after China with an overall production capacity of 330 mt per annum. According to a report by the working group on the cement sector, the industry is likely to add another 150 mt of fresh capacity by 2017.