After hitting a 52-week high in February, shares of cement companies are back in reverse gear. At a time when the benchmark indices have lost a little more than three per cent after their latest highs, cement stocks have underperformed the indices, losing with a majority of the counters between 10 and 15 per cent.
Rather, weakness in the cement stocks was quite visible as soon as the cement industry hit its three months lowest growth in January at 10.3 per cent against 14 per cent and 19 per cent in December and November, respectively. On top of it, the fall in cement counters only intensified when last week Corporate Affairs Minister Veerappa Moily talked about investigations being carried on against cement companies for making a cartel.
“Talks of Competition Commission of India probing for cement cartelisation have always had a negative impact on cement stocks,” said the research head at a domestic brokerage house. For instance, shares of ACC and JK Lakshmi Cement have lost around 10 per cent since their recent highs, while JP Associates and India Cements have lost 15 per cent. Shares of ACC’s sister concern Ambuja Cements are down 12 per cent (See table).
The robust quarterly performance by cement majors including UltraTech, Ambuja and ACC, catapulted some of the cement shares to their all time highs. This made industry analysts cautious and they had told Business Standard that further upside was capped in the short term. This came true and before their benchmark indices could show decline, cement stocks were already losing value at a much faster pace.
“Cement stocks were richly valued and could not sustain. I believe coming sessions may see further downside movement in cement counters,” the research head added. “Investors, who have an investment tenure of at least more than one year from now, can get into cement sector. But those who have a perspective of two-three months, should avoid the sector as of now,” he explained.
Industry officials have turned optimistic about the sector’s growth in 2012-13. Already, in the current financial year, industry is estimated to grow around seven per cent, a rise of 150-200 basis points, against the estimates at the beginning of this financial year. Going forward, chief executive officers are painting a robust picture of reaching up to a growth of as high as nine per cent for the next financial year (FY13).
According to experts, cement players are successfully maintaining a disciplined supply approach. This has helped them sustain cement prices at above Rs 250 for a 50-kg bag.
The recent decision by Coal India to go back on the earlier formula of fixing prices of coal has also given an uplift to cement companies as they are facing input costs pressures.