Prevailing uncertainties in the cement sector, following continuous government intervention to keeping prices under check despite rising input costs, made cement stocks hit a 52-week low today.
The companies that suffered the fall on the Bombay Stock Exchange (BSE) included Grasim Industries (Rs 2,250), India Cement (Rs 151.90), UltraTech Cement (Rs 658.05), Shree Cement (Rs 891) and Dalmia Cement (Rs 260).
Industry analysts said that cement companies would have difficult days ahead as buying interest for their stocks was considerably low in the market.
Sandeep Sabharwal, Chief Investment Officer (CIO), JM Financial mutual fund, said, "Valuations are quite cheap in the sector. However, prices will remain under pressure because of higher supply. Lots of fresh capacities are being added. There is nothing much to look forward to in the short-term. We stand bearish on the sector."
Most of the cement stocks fell between 1 per cent and 5 per cent despite 123.83-point rise in the Sensex. ACC, Ambuja Cements and Madras Cement were trading on the BSE at their three-month low market price.
UltraTech Cement, the largest loser among the frontline A group, fell 3.8 per cent to close at Rs 664.50 against the previous close of Rs 690.40 on the BSE, followed by Grasim Industries, which slipped 3.6 per cent to Rs 2,255.55 (previous Rs 2,550), India Cements 2.2 per cent at Rs 157.50 (previous Rs 183) and ACC 1.5 per cent to Rs 701.65 (previous Rs 812.60).
The non-A group cement sector stocks such as Binani Cement, Birla Corp, Mangalam Cement, OCL India, Prism Cement, JK Lakshmi Cement, Shree Digvijay Cement, Sagar Cements and Saurashtra Cement declined more than 2 per cent each.
"Inflation concerns coupled with the government intervention in the sector despite rising input costs, is shrinking margins of the cement companies. Moreover, there is already an oversupply concern in the market within a year-and-half period, which would bring down the cement prices," said a Mumbai-based analyst who did not want to be named.
According to Saurabh Nanavati, Chief Executive Officer (CEO), Religare Aegon Mutual Fund, the cement stocks were going to have limited upside. There would be pressure on margins due to high raw material costs, he said.
The 189 million tonne domestic cement industry is investing over Rs 50,000 crore to add around 70 million tonne by 2010. In the year ended March, 2008, the industry added around 23 million tonne of capacity and is expected to add another 30 million tonne in the current financial year.
Since the new capacities have started commissioning, cement prices are definitely going to come down. In the last two years, the price of a 50-kg bag of cement has increase from Rs 165 to Rs 270, up 64 per cent. It is despite imports from Pakistan, which enjoys free import duties and no countervailing duties.
Only last week, ACC had announced freezing of prices for two to three months. Shree Cement has already cut the prices by Rs 2-7 a bag. Some more market players are expected to act in the days to come.
