Street unperturbed by coal block cancellations of cement majors

Coal IMG recommended de-allocation for Grasim, Lafarge, Gujarat Ambuja today

In a latest development the( inter-ministerial group) IMG  on Thursday re-commended de-allocation of two more blocks held by five major players include large cement players as Gujarat Ambuja cement, Grasim Cement and Lafarge India Pvt Limited as per reports. However no pressure was seen on the stock prices. Grasim though closing marginally lower on BSE closed in the green on the NSE. Ambuja too closed marginally lower at Rs 191.50 (down 0.34%) while Sensex lost higher 0.79%.

The IMG in its review of coal blocks recommended cancellation of mining licenses of Bhaskarapara block in Chhattisgarh and Dahegaon Makardhokra IV in Maharashtra. Bhaskarapara block in Chhattisgarh contained 48 million tonnes (MT) of reserves and was allotted to Grasim industries and Electrotherm India in 2008. The Dahegaon Makardhokra IV coal block with 132 million tonnes reserves was allocated to IST Steel & Power Ltd, Lafarge India Pvt Ltd and Gujarat Ambuja Cement in 2009.

The news however did not disturb the market participants as the said coal blocks were in the initial stages of development.  The coal blocks though may have supported the coal supplies for Ambuja Cement and Utratech cement that currently depend on majority of their supplies from imports or through coal linkages however Anil Srivastava, Analyst at Nirmal Bang Securities said that since the current and following year estimates and valuations of the companies do not factor in any output from these coal blocks, the cancellation has made no difference. He still feels Grasim at current levels still seems attractive. While a strong run-up has been seen in the Ultratech's stock prices (34.52% since 11 May’12), the same has not been reflected in the Grasim stock prices, which is the holding company.

The cement players are generally trading at quite stretched valuations however analysts feel that the valuations are arrived based on financial estimates which are generally on the conservative side. They feel that the cement cycle is turning however has not been factored in much in the estimates and hence one is feeling the valuations are stretched. The company’s as Ultratech and Ambuja are standing on a strong footing and demand-supply equation is in their favor with realization remaining strong. Thus the stocks can see further upside.