Rising freight, cold wave hit cement stocks

Gujarat Ambuja and Grasim fell about 3.1%, while ACC fell 3.7% in the past fortnight.

Investor sentiment for the cement industry has been badly hit over the past fortnight and several stocks in this sector have under-performed the Sensex.

For instance, Gujarat Ambuja Cement has fallen about 3.1 per cent during this period compared with a 0.2 per cent rise in the Sensex. Grasim, too, has dropped about 3.1 per cent during this period and even ACC has fallen by 3.7 per cent.

Even stocks of mid-sized players such as Shree Cement have dipped almost 4.2 per cent during the last fortnight.

On this downtrend in the sector, analysts point to a recent Supreme Court order which has banned overloading of trucks.

In addition, the highest court has directed state governments to stop issuing gold cards. These cards have been issued since 1999 and it was widely believed to have led to overloading of trucks.

For most of the cement firms, this development is expected to result in freight costs moving up by approximately 5- 6 per cent, point out analysts.

ACC, for instance, had already seen its consolidated outward freight charges on cement rise almost 31 per cent y-o-y to Rs 165.08 crore in the September quarter. In addition, even as a percentage of net sales, this cost rose 226 basis points to 15.55 per cent in the last quarter.

Another factor contributing to reduced investor interest has been severe cold condition in both the northern and central markets. Colder weather typically leads to reduced construction activity. These two markets typically account for about 36.5 per cent of total cement sales in the country.

Cement despatches had shown a sluggish trend in November, with the top four players reporting a mere 2.12 per cent y-o-y growth to 47.2 lakh tonne. And given the cold condition in several northern states, analysts highlight that it is increasingly likely that December cement despatch figures would also be subdued.

To add to the woes of the cement manufacturers, cement prices have dipped about Rs 6 - 10 per bag in eastern markets largely due to improved supplies.

Analysts, however, point out that all hope is not lost for the cement sector.

Players such as Gujarat Ambuja have been increasingly using alternative transport such as ships to better manage rising road freight costs. As a result, Gujarat Ambuja's freight and forwarding charges had marginally fallen to Rs 124.93 crore in the last quarter.