Cement stocks tank on possible CCI rap

Tsunami alert following earthquakes in Indonesia adds to woes

Shares of cement companies were hit hard on Wednesday amid buzz that the Competition Commission of India (CCI) could soon give a negative ruling in the matter of cartelisation by cement manufacters. Further, the alert of a possible tsunami, following earthquakes in Indonesia, exacerbated the decline.

Stocks of major cement makers lost between three and eight per cent of their value on a day when the benchmark indices closed marginally lower. South-based India Cements was the worst hit as its shares witnessed an erosion of 7.73 per cent, followed by ACC (4.93 per cent). Shares of Ambuja, Jaiprakash Associates, Madras Cements and JK Cement plunged in the range of 3.5-4 per cent.

Cement players have always been denying charges of cartelisation, maintaining pricing of the building material is a function of the demand and supply situation. In one of its latest reports, brokerage firm Macquarie had said it expected the companies involved in catelisation to be slapped with penalties of about seven per cent of total revenue (last three year’s average), for each year of the investigation. This amount of penalty equals five to six per cent of the market capitalisation. Currently, the all-India average price of cement is ruling at an all-time high of Rs 300 per 50-kg bag.

Earthquakes in Indonesia added to the woes of cement stocks on Wednesday. Several Indian cement makers, including UltraTech Cement, Ambuja Cements and India Cements import sizeable chunk (30-70 per cent) of their coal requirement.

The imported coal is sourced mainly from South Africa and Indonesia. Last year, India Cements invested $20 million to acquire a coal mine in Indonesia.

“Speculations regarding impact of the earthquake in Indonesia on the company’s coal mines might have hammered the stocks of India Cements,” said the research head of a Mumbai-based brokerage.

Another factor that impacted cement stocks was the reduced sales growth in March. For the first time in the last five months, during March, the cement industry’s growth slipped from double digits to single digit of 7.45 per cent.

In the October-December quarter, cement companies had registered robust profitability. At a time when benchmark indices saw erosion of around one-fourth of their values in the previous calendar year, cement stocks were among the top gainers. In the current situation too, when the markets are ruling weak, cement stocks have managed to remain firm.