Shares of cement majors stand up, other sectors wilt

At a time when domestic equity markets are underperforming, in line with the global indices, Indian cement majors have been a surprise, as their shares have refused to lose value.

After the Reserve Bank’s policy announcement of July 26 on credit tightening, domestic benchmark indices have lost 12 per cent in value. The Bombay Stock Exchange’s benchmark Sensex lost 2,194.54 points, to close at 16,676.75 on August 30. But, not cement stocks.

For instance, the share price of the country’s largest manufacturer, UltraTech Cement, has gained 7.1 per cent since then. The stock traded last at Rs 1,070.40 on August 30. That of Ambuja Cements was up 1.4 per cent, to close at Rs 133.10, while those of Swiss cement maker Holcim-owned ACC marginally gained 0.4 per cent, to Rs 1,002.55 a share.

Industry analysts say the only factor which seems to be giving cushion to cement stocks are their June quarter performance. Though poor, it was better than anticipated. “Else, cement makers are surrounded by negative factors for quite some time now,” adds a Mumbai-based research head of a domestic brokerage house.

These include over-capacity, low price realisation, subdued demand for building material, rising input costs and no major infrastructure projects after the Commonwealth Games. Yet, cement majors managed to protect investors’ wealth.

The interest of foreign institutional investors (FIIs) in cement majors during the June quarter also helped the shares remain stable. FIIs increased their holding in ACC during the period by 33 basis points (bps), while in the Aditya Birla Group’s UltraTech, they scaled up their stake to 13.4 per cent, a rise of 43 bps.

Till June, the demand for cement remained subdued, though this improved in July. There is considerable over-capacity. Against a requirement of 225-230 million tonnes estimated for 2011-12, the industry capacity is 300 mt.