Hopes of good monsoon lead to profit-booking in cement shares

Cement stocks came under pressure on Tuesday, as expectations of good monsoon fuelled profit-booking on the counters. On a day when benchmark stock indices declined a little over half-a-percentage point, shares of cement majors witnessed value erosion of anywhere between two and five per cent.

The monsoon season has always been a dampener for sentiments in cement shares, as rains could hamper construction.

UltraTech Cement, part of the Aditya Birla Group, was hit the hardest as its stock lost 4.26 per cent or Rs 86 to close at Rs 1,933.50 on the BSE. Jaiprakash Associates, a dominant player in central India, met the same treatment as its shares plunged around 4.2 per cent in Tuesday’s volatile trading session.

Sector analysts attributed it to a pure profit-booking exercise by traders as cement stocks had run up sharply over the last few sessions. “Given the fact that monsoon is just round the corner was a good enough reason to exit the cement counters,” said a research analyst at a Mumbai- based brokerage firm.

Stocks of ACC lost 2.1 per cent, while its sister-concern Ambuja was relatively better placed as the counter managed to keep the losses at around 1.3 per cent.

With cement prices under pressure at an average of Rs 287 for a 50 kg bag on all-India level, continuous poor offtake of the building material despite being in peak construction phase has been worrying the sector. It was last in March that all India average prices had touched Rs 300 for a bag — that too briefly. However, prices have been at Rs 285-290 a bag since then.

It is interesting to note that last week, the Competition Appellate Tribunal (Compat) had asked cement makers to deposit 10 per cent of the penalty, which the Competition Commission of India (CCI) had imposed on June 20, 2012. However, that day, cement shares had ignored the verdict and had strengthened.

Given the fact that in the January-March quarter, almost all cement companies reported either negative or flat sales, market participants fear that in the coming quarter (if monsoon turns out to be good) cement will be an under performer.

Currently, there are around 50 companies (large and small) operating in Indian cement sector with an overall capacity of 350 million tonne per annum. UltraTech, Ambuja, ACC, Jaiprakash, India Cements and Shree Cement control almost half of the market share.