Cement shares under pressure

Stocks of cement companies came under pressure on Thursday, after the Railway Budget proposed a rise in freight rates for coal by 6.3 per cent and by 2.7 per cent for cement.

Logistics is an important factor for cement companies' operations, as building material-move as much as 500 km away from production units. Further, coal is a vital component in production, set to be costlier for this industry. Cement shares fell 0.5-1 per cent on Thursday, as experts expected a dent in companies' profit margins, on the back of inability to pass on the costs. About 40 per cent of the cement transportation in India is done through the rail route. The rest is primarily by road. The shares of UltraTech Cement, the country's largest cement maker, declined 2.1 per cent to close at Rs 2,973.65 on the BSE. Shree Cement and India Cements lost 0.9 per cent and 0.6 per cent. Shares of Holcim's Indian twins, ACC and Ambuja, were down about 0.5 per cent each. Piyush Jain, research analyst at Morningstar India, said: "The proposed hikes will make every 50 kg of cement bag dearer by Rs 3-6. It is less likely that companies will pass on the higher costs to consumers, as demand remains subdued."

Agress the president of a south-based cement entity, "Cement prices were raised taking into account better demand expectations. But as things stand, I fear whether companies will be able to continue with the recent price hike." He ruled out the possibility of increasing of prices due to the freight rate rises.

Currently, the all-India average price is Rs 310 for a 50-kg bag. Experts feel the exuberance seen in cement stocks will cool off, as the counters had galloped and were factoring in the FY17 growth expectations.

India is the second largest cement producer in the world, with an annual manufacturing capacity of 380 million tonnes. In the current financial year, the expected consumption is 270-280 mt.