Cement counters clock a good run

Exports, rising demand add to pricing gains in the last two months

Strong demand and firm prices seem to have boosted investor sentiment in cement companies in the last few weeks.

Cement despatches and average price in the month of June and July have been significantly higher compared with demand and price in the corresponding period of the previous year, said analysts, adding that while a late monsoon kept the offtake consistent, a healthy demand in the northern and eastern markets has maintained the pricing level.

A number of brokerage houses have also given a buy call for a number of cement scrips.

Cement pivotals Gujarat Ambuja Cements rose 8.17 per cent from Rs 272.25 on July 5 to Rs 294.50 on August 4. In the same period, ACC moved up 5.42 per cent to Rs 250.05 from Rs 237.20 and Grasim was up marginally by 0.89 per cent.

The smaller players were also in the limelight with the likes of Shree Digvijay Cement surging 57.14 per cent to Rs 32.45 and Mysore Cements was up 47.38 per cent to Rs 12.38.

Analysts said that renewed demand from the Middle East countries, resulting in an average $10 per tonne increase in export prices to $38 per tonne, is likely to add to the export earnings of domestic cement makers.

A cement sector analyst said, "Companies such as Gujarat Ambuja Cement, Sanghi Cement and UltraTech CemCo, who have manufacturing facilities near the port in Gujarat will be the main beneficiaries of the increase in demand and export prices."

Gujarat Ambuja exported around 70 lakh tonne, representing around 7 per cent of the company's total despatches to the Middle East and the Gulf region in the year ended June 2004.

Cement analysts said, "Given the current demand and pricing scenario in the Middle East, exports from Gujarat Ambuja are expected to increase. However, availability of ships may not allow the company to increase its exports significantly."

Exports by Sanghi and UltraTech primarily consist of clinker, which is also expected to rise, they added.

Meanwhile, retail cement prices around the country have been ruling 10-13 per cent more compared with prices in the last two years. Demand has been buoyant in the northern and eastern markets in July, leading to a better pricing scenario.

While Gujarat Ambuja reported an increase of almost 20 per cent in its July despatches, The Associated Cement Companies has posted a 7.6 per cent increase in despatches, compared with July 2003. Grasim and UltraTech CemCo registered a growth of 12.54 per cent and 9.8 per cent, respectively, in its despatches.

A leading cement stockist said, "In Gujarat last year, prices were in the region of Rs 95 for a 50 kg bag, while current prices are ruling around the Rs 140 levels. Since demand has been good in these regions, a higher price regime has sustained."

Retail cement prices in Mumbai, the country's largest market were also around 10 per cent higher around Rs 160, against prices in July 2003.

An industry observer points out, "Even in the last couple of weeks, since the onslaught of monsoon in the western region, prices have remained higher compared with prevailing prices around the same time last year. This is mainly because of reduction in the demand supply gap in these markets."

Retail cement prices in markets in the eastern parts of the country have been in the region of Rs 175 for a 50 kg bag. However, prices in the southern markets have remained soft and have not witnessed much change, due to excess supply.