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Cement company stocks have rallied on the back of improving demand leading to price hikes and fall in input cost.
On average, all-India cement prices have increased two per cent. The Eastern region, which has witnessed third consecutive hikes, saw an price increase of 4 per cent last month, while the western region registered month-on-month rise of 2 per cent. The southern and northern regions saw a moderate hike of one per cent, even while it remained flat in the central regions. With a buoyant demand, cement companies are gearing up another price hike this month.
Driven by housing and infrastructure sectors, the cement industry has witnessed a V-shaped recovery and healthy growth in FY22, said CARE Ratings. “At 350 million tonnes, the demand surpassed pre-Covid levels of 331 MT in FY19 and is expected to grow by 8-9 per cent y-o-y in FY23. Increased government spending on infrastructure and a pick-up in real estate is likely to support demand further,” it added.
Profit taking
Shares of UltraTech Cement was up six per cent at ₹7,196 on Monday against ₹6,812 on November 1, while Shree Cement was up five per cent to touch ₹23,813 against ₹22,657 in the same period.
Similarly, JK Cement rallied to ₹3,190 (₹2,800), while Adani group companies Ambuja Cement and ACC were up at ₹573 (₹544) and ₹2,621 (₹2,427). However, some of these stocks were down on Monday on profit booking.
Vinod Nair, Head of Research from Geojit Financial Services, said the key input costs of the cement sector such as fuel and pet coke have seen a softening from peak levels, which will improve the margins in the upcoming quarters.
Valuations go up
Moreover, cement companies have raised the prices of their products on revival of demand as construction activities picked up post-monsoon and the Government‘s strong emphasis on housing and infrastructure spending prior to general election. Though the valuation of these stocks have gone up after the recent rally, it will be justified by the improved margins on the back of falling input cost, he said.
Cement production in October declined 4 per cent year-on-year due to higher base. However, demand is expected to revive this month on pre-election construction activity, said an analyst. Moreover, energy prices have declined consecutively for the second month, which augers well for cement players. Average imported coal prices for November fell 21 per cent to $214 a tonne.
Published on December 5, 2022
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