Cement stocks outperform Sensex

But the going may get tough in the months ahead.

Cement majors — ACC, Ambuja and UltraTech — have managed to keep investors’ wealth intact at a time when the benchmark indices are still trading 10 per cent weaker this financial year.

Despite all negatives, the cement companies, struggling with margin pressure, lower capacity utilisation, higher input costs, lower-than-expected growth in profits and the decade’s lowest demand growth, have put a strong performance on the stock markets.
 

LEADING FROM THE FRONT Stock performance of cement majors
Companies	31-Mar	3-Nov	Chg (%)
ACC	1,075.20	1,216.50	13.14
Ambuja	147.05	157.15	6.86
UltraTech	1,133.80	1,153.95	1.77
Sensex	19,445.22	17,481.93	-10.10
Share price on BSE in Rs

So far in the current financial year (April-October), BSE benchmark Sensex has lost over a tenth of its value. On the other hand, major cement stocks have bucked the trend. ACC, for instance, has outperformed the benchmarks heavily, gaining over 13 per cent, while the stock of its sister concern Ambuja Cements has risen seven per cent. Aditya Birla Group’s UltraTech Cement has also risen reasonably, by two per cent.

Swiss major Holcim-owned ACC and Ambuja Cements, along with UltraTech, control close to 40 per cent of the country’s cement market. Together these command 107 million tonnes of cement-making capacity, compared with the industry’s overall capacity of 290 million tonnes. Of late, stocks of other cement majors, like India Cements, Madras Cements, Shree Cements and Jaiprakash Associates, too, have started moving upwards.

What has helped cement stocks hold themselves in a weak and uncertain market? Till the middle of the monsoon season, analysts were surprised with the performance of cement stock. Amid all negatives, there were enough reasons for cement stocks to underperform. However, barring some volatility, cement stocks did not fall much.

“Fundamentally, there is no big factor that could have helped cement stocks,” says V Srinivasan, research analyst at Angel Broking. One of the factors turning out to be positive is their ability to maintain prices, he adds.

This augurs well for cement companies. After monsoon, the average cement prices across India have already surged 10 per cent to Rs 260 for a 50-kg bag. But it is still lower than around Rs 280 a bag in the March quarter.

Fund managers and foreign institutional investors (FIIs) have taken buy calls on the sector. The chief investment officer of a foreign fund house says: “We took a contrarian call on cement at the start of the second quarter and it worked. Cement saved us, as our funds did not see much erosion.” In the September quarter alone, fund managers increased their asset allocation to the cement sector by more than 30 basis points.

In ACC, FIIs have increased their holding by 1.3 per cent to 16.19 per cent, while in UltraTech it stands at 2 per cent more at about 15 per cent, compared with 13 per cent at the beginning of the financial year. In the June quarter, growth in demand was flat, with a rise of 0.3 per cent, whereas the growth in the September quarter was 6.5 per cent — the highest in the last five quarters. Analysts’ outlook for the sector remains weak, but with pricing power once again in manufacturers’ hands, it would be interesting to see how things pan out in the second half.