Cement scrips become FIIs' hot favourite

The domestic cement industry has become a favourite destination for foreign investment. Cement scrips are soaring on consistent investment by the foreign institutions.

In three to six months, foreign shareholding in almost all the top cement companies increased substantially. While Holcim's Rs 2,100 crore takeover investment in Gujarat Ambuja Cement (GACL) hogged the limelights, foreign shareholding in India Cements more than doubled from 16.06 per cent in September 2005, to 37.32 per cent in March this year.

Of this, the share of foreign institutional investors (FIIs) stands at 17.28 per cent. Last month, the company announced that it will further increase the FII limit from 24 per cent to 40 per cent.

Similarly, foreign interest in J K Cement rose from a marginal 0.39 per cent in December 2005 to 13.21 per cent in March 2006. After the latest Actis deal, foreign shareholding in Dalmia Cement would increase to 17.7 per cent.

The big two - Grasim and ACC - saw a marginal increase in the foreign stake in their shareholding.

While overseas holding in Grasim increased from 34.52 per cent in December last year to 36.48 per cent in March, in ACC it went up to 25 per cent from 24.46 per cent over the same period.

In September 2005, the foreign holding in ACC was 21.94 per cent. Foreign shareholding in GACL, increased by more than 10 per cent in three months to 57.48 per cent in March.

"Rising prices and double digit growth in demand for cement has fueled this interest. Now that the companies are coming out with good quarterly performances, the foreign investment in the sector is bound to increase.

This has helped a few cement scrips repeatedly breach the 52 week-highs," says an industry observer.

While GACL more than doubled its profits in the fourth quarter, ACC's net increased by almost 50 per cent. The prices too, are at new high of Rs 215 in the Mumbai retail market and Rs 200-plus in the Delhi markets.

Interestingly, the sector seems to be particularly preferred by FIIs based in Mauritius. At least five FIIs, including Indiaman Fund, Goldman Sachs Investments and Aberdeeb Asset Managers have invested millions of dollars in the country's cement companies.

Indiaman, Citigroup Global Market and Deutsche Bank Trust have exposures in more than one cement firm.

The Mauritius-based HSBC Global Investment Funds has bought stakes in ACC, Grasim and JK Cement.

"The bullish trend will be on for sometime now as the industry demand is set to grow at 10 per cent this year. But more than the FII participation, now it is turn for consolidation in the industry," said an analyst.