A majority of cement stocks are seeing an upward momentum backed by good demand, but the trend is unlikely to continue
Cement shares have been going up since the last month due to robust demand. However, concerns of oversupply are likely to hit the industry in the long run, which can lead to a correction in cement stocks, say analysts.
“The increase in cement prices over the past two months coupled with improved cement off-take due to pick up in infrastructure activity is a positive for the domestic cement industry,” said Sharekhan Ltd in a report.
Cement manufacturers increased prices backed by a demand peak in January and anticipation of higher infrastructure expenditure in the upcoming budget. The prices of cement have shot up by Rs3-Rs5 per 50kg from February to Rs235 (average national price) per bag currently. Some of these factors are being reflected in the current hike in cement stocks.
“In spite of the recent price hike, we believe the average price is unlikely to reach the levels witnessed in Q2FY10 and with the stabilisation of the new capacities, we see the prices coming under pressure from Q1FY11,” the brokerage added.
UltraTech Cement is up by 8% at Rs984.90 as on 10th February from Rs913.20 last month. Shares of companies such as ACC, Ambuja Cements, Grasim and JK Cement have also shot up in a span of four days, from 6th February to 10th February. During this period, ACC was up by 2% at Rs870.10 from Rs850.30. Ambuja Cements was up 4% from Rs100 to Rs103.90; Grasim was up by 5% at Rs2704.80 from Rs2577.50. JK Cement was up by 6% at Rs151.70 from Rs142.60.
Dalmia Cement Ltd closed at Rs193.30 on 10th February from Rs169.80 as on 29th January, up 14%. Its sales grew by 22% at Rs509.80 crore for the December FY10 quarter from Rs409.90 crore, while the company registered an operating profit growth of 11% at Rs131.30 crore from Rs99 crore over the same period last year.
According to an analyst from a leading brokerage house, “Demand growth has been very good and this would continue for two-three months till June. After that, we will again see a price cut. This (rally in cement prices) will not sustain for long.”
ACC Ltd reported a 9% growth in sales in the December quarter of FY10 at Rs2,029.50 crore compared to Rs1,956.60 crore last year. The company’s operating profit grew by 32% at Rs622.90 crore from Rs470.90 crore in the corresponding period last year.
“It’s because of the pricing scenario, and the January demand growth for cement was up by 14%. This shows that there is good growth across the markets. There is not much pressure and cement stocks are getting absorbed by good demand growth. Another reason could be that these are under-owned stocks, which are not owned by mutual funds and ownership rests with a few people who can corner these shares,” said other analyst.
Ambuja Cements sales fell by 8% at Rs1,758.80 crore in the December FY10 quarter compared to Rs1,641.30 crore in the same period last year, while UltraTech Cement posted a 16% sales growth at Rs1,741.70 crore compared to Rs1,637.20 crore last year. UltraTech Cement registered a growth of 21% in its operating profit at Rs521.20 crore in December FY10 from Rs437.30 crore last year.
The cement industry recorded an 8% growth in the year 2008-09. India’s cement consumption has seen a sharp rise from 113.86 million tonnes (MT) in 2003-04 to close to 190MT in 2008-09.
Indian bourses gained following positive trends in global markets
Indian markets remained in the green on the back of strong Asian markets powered by strong economic data from Australia and China, and ahead of a key European Union summit that could lay out a rescue plan for debt-stricken Greece. At the end of the day, the Sensex shot up 230 points from the previous day’s close, ending the day at 16,153, while the Nifty closed at 4,827, up 70 points. The stock market remains closed on Friday, 12 February 2010, on account of Mahashivratri.
Next week, we expect the market to continue its short rally. But it will be a struggle from here on.
At 11:00 hrs IST, the Sensex was trading at 16,118, up 196 points from the previous day’s close, but at 14:00 hrs IST, the Sensex was trading up 217 points at 16,139.
At the end of the day, Hindalco Industries rose 1% on reports that the company hopes to complete raising Rs4,900 crore of debt in the next two weeks to achieve financial closure for Utkal Alumina Refinery, a 15 lakh tonne per annum project in Orissa.
JSW Steel rose 3% on reports the company is close to buying two coal mines in the US.
Trinethra Infra Ventures declined 2%, after P Koteswara Rao, a director and promoter of the company, pledged 24 lakh shares representing 7.43% of the equity capital of the firm.
WABCO TVS India rose 4%, after it recently signed a pact with Mahindra Navistar Automobiles to develop air-compressor technology, products for braking systems and clutch technology.
Orbit Corporation rose 7%, despite a media report that the income-tax department had raided the company’s premises. The report stated that the raid was due to bogus purchase billing worth over Rs300 crore over the past three years and income-tax officials unearthed unaccountable cash in excess of Rs15 crore.
Mahindra & Mahindra and Mitsubishi Agriculture Machinery Company, Japan, have signed a license agreement for a strategic transfer of agricultural machinery technology. The stock was up 3%.
As per media reports, the Union Cabinet today eased foreign investment rules. Home minister P Chidambaram told reporters after a Cabinet meeting that the Foreign Investment Promotion Board (FIPB) can now approve investments of up to Rs1,200 crore. Earlier, the FIPB, an arm of the finance ministry, had power to approve foreign investments of up to Rs600 crore.
Meanwhile, data released by the government showed that annual food inflation rose for the third straight week. The food price index rose 17.94% in the 12 months to 30 January 2010, higher than an annual rise of 17.56% in the previous week. The fuel price index rose 10.44% and the primary articles’ price index rose 15.75%.
Subir Gokarn, Reserve Bank of India (RBI) deputy governor, said that there would be no policy decision until April 2010 unless the situation demands it. Mr Gokarn also said that there is no proposal to bring down interest rates on saving accounts.
After trading hours on Wednesday, the central bank said that it would introduce (from 1 April 2010) a new base rate to price credit more transparently, replacing the existing benchmark prime lending rate (BPLR). The apex bank said that the base rate will be the new reference rate for determining lending rates. According to draft guidelines, the RBI has proposed that the actual lending rate charged to borrowers would be the base rate plus borrower-specific charges including product-specific operating cost, credit-risk premium and tenure premium. The base rate will be applicable for all new loans as well as for old loans that come for renewal. Existing borrowers who want to switch to the new system before the expiry of their contracts should agree on the revised rate structure with the banker, it said. The base rate could also serve as the reference benchmark rate for floating rate loan products, apart from the other external market benchmark rates, the RBI said.
During the day, Asia’s key benchmark indices in China, Indonesia, Hong Kong, South Korea and Singapore were up by between 0.1%-1.85%. Markets in Japan and Taiwan were shut for a public holiday. As per reports, South Korea’s central bank kept its benchmark interest rate at a record low of 2% after unemployment surged to a 10-year high, increasing political pressure on the bank to support a recovery.
On Wednesday, 10 February 2010, the Dow Jones Industrial Average was down 20 points while the S&P 500 and the Nasdaq Composite were down 2 points and 3 points respectively.
In premarket trading, the Dow was trading 48 points higher.
The governments of every advanced economy will eventually default on their sovereign debts, including the US, the UK and Western Europe, says Marc Faber, publisher of the Gloom Boom & Doom Report.