 "Shree Cement: Compelling but expensive growth story")
Cement shares reeling under pressure with most of the frontline companies falling more than 20% since November 9, on concerns of drop in sales due to fall in demand owing to currency rationing in the wake of demonetisation
Dalmia Bharat tank 15% to Rs 1,186 on the BSE in intra-day trade on Monday. At 11:28 am; the stock was down 8% at Rs 1,282, falling 37% from Rs 2,022 on November 8.
UltraTech Cement hit a six-month low Rs 3,076, was down 22% post demonetization, as compared to 6.5% decline in the S&P BSE Sensex.
The mid-and small-sized cement companies like JK Cements, India Cements, JK Lakshmi Cement, Sanghi Industries, Kakatiya Cement and Orient Cement have seen their market price declined more than 25% each.
“All India average prices have shown sharp corrections since November due to the festive season depressing demand followed by the announcement of demonetization hurting demand further. However, the scenario is likely to be worse in December with depletion of cash reserves and the low rate of its replenishment. We expect a low-single digit volume growth in 3Q and flat volume growth for 2HFY17,” analyst at IIFL Institutional Equities said in a report.
The brokerage firm estimate around 4-8% downside earnings risk for large-caps and 14-25% for most mid-caps, taking into consideration lower-than-expected prices and the recent 3% increase in diesel prices by around Rs 2 per litre.
Earnings in past 2-3 quarters were driven by cheap pet-coke. Things are likely to flip at the most inopportune time for cement companies, as spiking energy costs begin to sting at around the same time when volumes are likely to be low.
“As a result 3QFY17 will be one of the worst quarters for cement companies in recent times. Upcoming elections in five states, including UP and Punjab, will likely further weigh on demand, given that election code of conduct weighs on government spending. As a result, we remain cautious”, said analyst at HDFC Securities in research report.
Dalmia Bharat tank 15% to Rs 1,186 on the BSE in intra-day trade on Monday. At 11:28 am; the stock was down 8% at Rs 1,282, falling 37% from Rs 2,022 on November 8.
UltraTech Cement hit a six-month low Rs 3,076, was down 22% post demonetization, as compared to 6.5% decline in the S&P BSE Sensex.
The mid-and small-sized cement companies like JK Cements, India Cements, JK Lakshmi Cement, Sanghi Industries, Kakatiya Cement and Orient Cement have seen their market price declined more than 25% each.
“All India average prices have shown sharp corrections since November due to the festive season depressing demand followed by the announcement of demonetization hurting demand further. However, the scenario is likely to be worse in December with depletion of cash reserves and the low rate of its replenishment. We expect a low-single digit volume growth in 3Q and flat volume growth for 2HFY17,” analyst at IIFL Institutional Equities said in a report.
The brokerage firm estimate around 4-8% downside earnings risk for large-caps and 14-25% for most mid-caps, taking into consideration lower-than-expected prices and the recent 3% increase in diesel prices by around Rs 2 per litre.
Earnings in past 2-3 quarters were driven by cheap pet-coke. Things are likely to flip at the most inopportune time for cement companies, as spiking energy costs begin to sting at around the same time when volumes are likely to be low.
“As a result 3QFY17 will be one of the worst quarters for cement companies in recent times. Upcoming elections in five states, including UP and Punjab, will likely further weigh on demand, given that election code of conduct weighs on government spending. As a result, we remain cautious”, said analyst at HDFC Securities in research report.
| Company | 08/11/2016 | 23/12/2016 | LTP | % chg | % chg# |
| Dalmia Bhar. | 2021.75 | 1400.80 | 1282.00 | -8.5 | -36.59 |
| Kakatiya Cement | 353.00 | 247.60 | 234.20 | -5.4 | -33.65 |
| Keerthi Indus | 142.85 | 118.65 | 112.75 | -5.0 | -21.07 |
| OCL India | 941.05 | 696.35 | 668.70 | -4.0 | -28.94 |
| Panyam Cement | 62.05 | 50.85 | 49.00 | -3.6 | -21.03 |
| Sanghi Inds. | 69.95 | 49.80 | 48.20 | -3.2 | -31.09 |
| Prism Cement | 101.95 | 81.10 | 78.50 | -3.2 | -23.00 |
| Deccan Cements | 1050.90 | 913.60 | 890.00 | -2.6 | -15.31 |
| India Cements | 155.40 | 112.15 | 109.40 | -2.5 | -29.60 |
| The Ramco Cement | 616.10 | 529.60 | 517.65 | -2.3 | -15.98 |
| Century Textiles | 976.65 | 773.60 | 757.00 | -2.1 | -22.49 |
| Sh. Digvijay Cem | 24.35 | 19.45 | 19.05 | -2.1 | -21.77 |
| Heidelberg Cem. | 136.55 | 105.75 | 103.80 | -1.8 | -23.98 |
| NCL Inds. | 136.15 | 111.40 | 109.40 | -1.8 | -19.65 |
| Shree Cement | 17003.85 | 13637.90 | 13410.00 | -1.7 | -21.14 |
| Ambuja Cem. | 244.15 | 200.15 | 197.50 | -1.3 | -19.11 |
| Guj. Sidhee Cem. | 28.40 | 23.70 | 23.40 | -1.3 | -17.61 |
| Saurashtra Cem. | 70.30 | 53.55 | 52.90 | -1.2 | -24.75 |
| Birla Corpn. | 774.55 | 635.70 | 628.65 | -1.1 | -18.84 |
| K C P | 103.55 | 83.05 | 82.25 | -1.0 | -20.57 |
| J K Cements | 912.20 | 649.80 | 645.00 | -0.7 | -29.29 |
| ACC | 1503.75 | 1296.15 | 1289.10 | -0.5 | -14.27 |
| Orient Cement | 170.35 | 119.30 | 118.90 | -0.3 | -30.20 |
| UltraTech Cem. | 3958.10 | 3085.00 | 3076.00 | -0.3 | -22.29 |
| JK Lakshmi Cem. | 466.65 | 339.10 | 340.80 | 0.5 | -26.97 |
| Sagar Cements | 710.95 | 614.20 | 627.90 | 2.2 | -11.68 |
| Mangalam Cement | 323.10 | 249.10 | 257.85 | 3.5 | -20.19 |
| Sensex | 27591.14 | 26040.70 | 25803.00 | -0.9 | -6.48 |
| LTP : Last traded price on BSE in Rs at 11:28 am | |||||
| Source: CapitalinePlus, BSE | |||||
| % chg - over 23/12/2016, # % chg over 8/11/2016 | |||||
