Cement scrips log concrete gains on price hike hopes

The cement scrips have been on a rally in the past few days powered by an expected price hike in the immediate future. The cement majors - ACC, Ultratech, Grasim and Gujarat Ambuja witnessed consistent gains in the last one week. The Gujarat Ambuja Cement scrip gained 4.18 per cent from Rs 73 on Sept 26 to Rs 76.05 on yesterday's trade.

The UltraTech Cement gained above 2 per cent from Rs 73 to Rs 76.05, while ACC went up 2 per cent from Rs 477 to Rs 486.15 during the same period. However, the action in these counters has been subdued on Friday.

Gujarat Ambuja closed 0.92 per cent higher at Rs 76.75, ACC was up 0.23 per cent to Rs 487.25, while UltraTech Cement was down by 0.53 per cent to Rs 466.30. 

HOLDING FORT
	1-Sep-05	30-Sep-05	% Chg
ACC	478.4	487.15	1.83
Gujarat Ambuja Cement	67.75	76.75	13.28
UltraTech Cement	437.25	466.30	6.64
Shree Cement	442.25	460.00	4.18
India Cements	111.80	109.80	-1.79

Sentiments in cement counters have also been impacted in the recent past by higher dispatches. Despatches have grown by 20 per cent in the last couple of past months.

According to analysts, the higher despatch figures were mainly driven by a by a pick up in the infrastructure activity and residential construction activity.

Also, strong growth in organised retailing has lead to a boom in the construction of malls and multiplexes. Reconstruction activity has also picked up after the rain deluge in Western India in the last week of July.

According to analysts, post-monsoon, cement prices are expected to jump about five to seven per cent across the country. Capacity additions undertaken by a few regional players is not expected to make a heavy impact on the demand supply equation at least for the next few years, and as a result the prices would be favourable for the industry in the years ahead.

Since there is an existing capacity utilization of 90 per cent, the industry will have to go for capacity additions every year to meet the incremental demand, note analysts.

"This is just the beginning of the cycle and the cement prices will remain firm with the demand and supply well balanced to discount the negatives", says a cement analyst with a leading domestic broking house.

"We do not see any problem till FY08. In terms of valuations all the scrips are fairly priced," he adds. However, for the long term UltraTech Cement ( UTCL) and Gujarat Ambuja would be their pick.

Sri Sankar, head of research, at IL&FS Investsmart, said, ¿the rise in despatches is due to an increase in the capacity utilization. The prices would keep moving through out the year as the demand increases but later as the demand-supply situation tightens the price trends will become stable". "We expect the sector to post an 8 per cent growth (y-o-y)", he added.

The cement industry has been beleaguered by lack of consolidation, as the largest player never had more than 15 per cent of market share.

With Grasim acquiring the cement business of Larsen and Toubro, and Holcim's strategic tie up with GACL, the two groups effectively control 46 per cent of the market share.

Also, the entry of MNCs like Lafarge, Holcim and Italcementi could result in higher market discipline among cement players with in turn would translate into firmer cement prices.