Monsoon impact : Cement loses strength

Companies likely to report poor sales, say analysts

With monsoon hitting Kerala on time and expectations it would spread to other parts of the country without delay, cement shares have started losing ground.

Also, the possibility that sales figures in May would be poor has also dampened the cement counters over the last few trading sessions. Shares of India’s top cement makers have lost three-10 per cent of value over the past week.

For instance, Aditya Birla group's UltraTech Cement, India’s largest cement maker, saw its shares lose over 7 per cent of value. The counter which had been long trading close to02,000 level has declined around0150 a share and is currently trading at01,860 on the stock exchanges.

Another giant, Ambuja, owned by Swiss major Holcim, witnessed a dip of 5.8 per cent to0174.9 a share.

The counter had been consolidating around 180-185, but could not maintain it in recent trading sessions.

"What is worrying us is the fact that despite being an election year, demand is not showing any positive signs of growth. The government’s action on infrastructure development has gone for a toss,” says whole-time director of a north-based cement major.

India’s 350-million tonne cement industry went through an unusual quarter of January-March this year, which did not see growth in sales.

Rather, in most of the cases, sales were deep into the negative territory.

Despite that, cement counters continued to remain strong in anticipation of better growth perspective in the following quarter of April-June.

However, demand scenario remains bleak and with rains round the corner, market participants have started profit booking on the cement counters.

"Cement dealers have reduced inventory substantially as they do not want to take a chance. This has kept the prices stagnant for over a month now at around0285-290 for a 50 kg bag," explains a Mumbai-based cement industry analyst.

Capacity utilisation of the industry is already low at 74 per cent.

With the demand growth pegged at six-seven per cent in FY14, India is likely to consume around 240 million tonne of cement.