Cement stocks have been scaling new highs recently. Whether it is the Aditya Birla Group’s UltraTech or Swiss major Holcim-owned Ambuja, counters are trading at all-time highs.
In a year-to-date (YTD) scenario, against gains of 20-25 per cent in benchmark indices, shares of cement companies have drastically outperformed the broader markets. Some have gained as much as 200 per cent in nine months. The rally has been steady.
Interestingly, it’s happening amid negative factors for the sector, such as the issue of excess capacity or the hefty penalty of Rs 6,700 crore imposed on companies by the Competition Commission of India (CCI) in the first quarter of FY13. Many investors kept shying away from cement as an investment avenue, given the uncertain outlook. But the shares have kept going up.
So, should one get into these counters, which have already had a steep run?
Experts feel more fire is still there in cement stocks. But, they are quick to add, selective companies need to be looked at.
Reasoning
Ambareesh Baliga, independent markets analyst, says, “Prices of imported coal have softened but cement prices have not declined much. If going ahead with reform measures, if an infrastructure boom follows, then it will benefit the sector. Cement stocks have been outperforming the markets for a long time. I suspect whether such an outperformance will continue. However, stocks like UltraTech and Shree Cement still have potential to rise further."
Teena Virmani, vice-president (equity research) at Kotak Securities, said in a note, "We believe cement prices may remain strong, with revival in construction activity across various infrastructure and real estate projects, and companies would continue to pass on the increased costs to end-users. We would, thus, be selective in the sector and would prefer companies having good volume growth and attractive valuations."
More From This Section
Specifics
Analysts say one should avoid companies with larger presence in the southern part of the country. They say companies with high exposure in the north, west and east could turn out to be good buys at current levels from a short-term perspective.
The research head of a Mumbai-based brokerage house says, "The peak construction period is yet to start. Cement companies have been able to maintain the prices at around Rs 300 for a 50-kg bag for long now. It will help them post better bottom line growth."
| SCORING A HIT YTD gains in cement counters | |||
| Companies | (Share price in Rs) | Change (%) | |
| 30-Dec-2011 | 10-Oct-2012 | ||
| JK Lakshmi | 37.10 | 109.45 | 195.0 |
| JK Cement | 100.05 | 242.00 | 142.0 |
| Madras Cements | 102.45 | 182.20 | 78.0 |
| Shree Cement | 2,167.40 | 3,915.85 | 80.7 |
| UltraTech | 1,160.45 | 2,049.95 | 76.6 |
| India Cements | 65.95 | 93.15 | 41.2 |
| Ambuja | 155.40 | 209.80 | 35.0 |
| Grasim | 2,508.55 | 3,302.15 | 31.6 |
| ACC | 1,136.35 | 1,423.45 | 25.3 |
| Sensex | 15,454.92 | 18,631.10 | 20.55 |
| BSE 500 | 5,778.68 | 7,168.19 | 24.04 |
| YTD: year-to-date Source: Bombay Stock Exchange | |||
He says the shares of Ambuja Cements, UltraTech and JK Cement could still go higher. For that matter, even Shree Cement can inch up higher, he adds.
Kaushik Dani, equity head at Peerless Mutual Fund, says: "Sales volume for the industry has been healthy and CCI's penalty, too, has taken a back seat for the time being. The counters have had a good run and from here on, fundamentals would have to be looked into."
Barring the south, all other cement markets are witnessing a rise in capacity utilisation. The north is likely to see utilisation in FY13 at around 90 per cent against 85 per cent in FY12. In the western market, it might go up to 91 per cent against 83 per cent last year.