Shares of cement companies gained up to 8 per cent in the intra-day trade on the BSE on Tuesday amid expectation that the companies may restrict any sharp fall in the margin in April-June quarter (Q1FY21), due to higher demand and price hike.
Ambuja Cements, India Cements, UltraTech Cement, ACC, Birla Corporation, Shree Cements, JK Cement and JK Lakshmi Cement were up between 2 per cent and 8 per cent in intra-day trade on the BSE. At 02:54 pm, these stocks were up in the range of 1 per cent to 3 per cent, against a marginal 0.05 per cent rise in the S&P BSE Sensex.
The cement industry has surprised positively on the demand and pricing fronts, with better-than-expected demand revival during May and June after a standstill in April, and meaningful price uptick across India.
As per market intermediaries, encouraging demand scenario until the first half of June was primarily backed by pent-up demand, pickup in pre-Monsoon construction activities, an increase in spending by Panchayat in rural areas and a rise in activity under the MGNREGS program.
Analysts at Elara Capital believe these phenomena augur well for cement companies and are likely to restrict any sharp fall in margin in Q1FY21. The brokerage firm expects industry fundamentals to improve further in H2FY21 after some moderation in the near term, due to the Monsoon and, thus, retain a positive view on the sector. We believe firms with healthy business franchisees like having scalable capacity, strong brand acceptance, diversified regional mix, and healthy balance sheet will continue to be on a stronger footing,” it said.
“The cement demand is coming mainly from on-going projects. In our view, cement prices have peaked out in Apr/May and should cool off in subsequent months as demand picks up. Robust pricing so far and lower input costs YoY should moderate earnings decline on account of volume loss in 1HFY21,” analysts at HDFC Securities said in the cement sector report.