Cement Prices Seen Sluggish During Next Nine Months
Foreign institutional investors (FIIs) have turned neutral on all major cement scrips as cement prices are expected to remain sluggish for another 6-9 months.
Most FIIs have recommended a hold on major cement companies like ACC, Gujarat Ambuja, India Cements and Madras Cements.
None of the cement majors are expected to record impressive results, analysts said. According to analysts, ACCs net profit is expected to fall around 100 per cent for the full year.
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Profit after tax of Gujarat Ambuja and India Cements is expected to improve only marginally. Though first half results show declining operating profit margins for most cement majors against that in the same period last year, analysts are projecting the OP margin to remain at the same level for the entire year.
ACCs operating profit margin in first half of 1996-97 has fallen from 18 per cent in same period of last year to 12 per cent, while net profit fell from Rs 125.5 crore to Rs 55 crore.
Analysts have projected a net profit of Rs 108 crore for the full year. The companys annualised earnings per share has also fallen from Rs 302 to Rs 81.
Cement prices are not expected to rise as supply, which is increasing at 13-14 per cent, has far outstripped demand which is growing at only around 10 per cent, analysts said.
As cement cannot be stored for a long period of time any excess supply of even as low as 0.5 million tonnes is affecting price movement adversely, they added. Again, as freight costs are very high the excess supply in a region cannot be transported easily.
Besides, with the deregulation of the coal sector, power costs which comprise about 15 per cent of production cost, are expected to increase about 20 per cent putting further pressure on the bottomline, analysts said.
Prices have remained constant at around Rs 170 (per 50 kg) in the southern market which is the only region which has experienced major construction activity over the last 6 months.
Prices in the western market are around Rs 135 while in the north and east are at around Rs 133 to 136 range.