Lafarge-Holcim merger move: Top cement firms' stocks gain in momentum rally

Sector majors have gained 25-40% during the past month, anticipating a revival in demand in 2014-15

Amid a weak market and talks of a merger between France’s Lafarge and Swiss-based Holcim, stocks of India's top cement makers traded firm on Monday.

Shares of Holcim-owned ACC saw buying interest through the day, before these settled at Rs 1,375, up 0.83 per cent on BSE. Ambuja Cements saw a better rally, with the company stock gaining 2.71 per cent to close at Rs 208.75.

UltraTech, Holcim’s primary competitor in India, surged the most, closing at Rs 2,220.15, up 3.24 per cent, defying speculation the company would be at the receiving end after the merger of the European duo's Indian operations. UltraTech was the also largest gainer in the cement space; in intra-day trade, it hit an all-time high of Rs 2,230.

The BSE Sensex recovered after losing about 160 points during day, closing 16.05 points down at 22,343.45. “Losing leadership position does not mean UltraTech will be a loser. Moreover, the company will almost be neck and neck with the total capacity of the merged entity," said an analyst tracking the cement segment for a city-based research house.

Experts said the rise in cement stocks in Monday was just a momentum rally and had nothing to do with fundamentals. They added for the sector, the ground reality continued to remain poor. During the past month, top cement majors have gained 25-40 per cent, anticipating a revival in demand in FY15.

On Monday, the price action was restricted to the stocks of major players; shares of smaller players traded weak. For instance, Shree Cement lost 1.02 per cent, while JK Lakshmi Cement and JK Cement fell 3.6 per cent and 0.4 per cent, respectively, on bourses.

With overall cement manufacturing capacity of 350 million tonnes a year, India is the world’s second-largest cement market, after China.  However, through the past couple of years, the consumption pattern of building material has been quite sluggish. The severity of the situation can be gauged from the fact that the sector's utilisation level has remained below 75 per cent, while consumption stands at 260 million tonnes, against high standing capacity.

Experts say the quarter ended March 2014 didn't bring any good news for cement makers, as pressure on margins remained. Most companies in the cement space are likely to report declines in profitability for the quarter. There are about 40 cement players in India. The top companies — UltraTech, Ambuja, ACC, Jaiprakash, India Cements and Shree Cement — account for about half the market share.