Concrete numbers

Cement despatches were buoyant in December

Top four cement players - Gujarat Ambuja, ACC, Grasim and UltraTech "" have recorded a 14.05 per cent year-on-year growth in despatches at 53.8 lakh tonne in December against a mere 2.12 per cent rise at 47.2 lakh tonne seen in the previous month.

The improved monthly numbers have helped cement players to better their despatches in the December 2005 quarter by 7.12 per cent y-o-y at 151.31 lakh tonne.

In contrast, despatches for the top four firms had risen a mere 2.96 per cent to 128.72 lakh tonne in the September 2005 quarter.

Analysts say the growth in December despatches was driven by an upturn in demand from southern states, in particular from Andhra Pradesh which is implementing key infrastructure projects.

On the other hand, demand from north was more or less flat as construction activity was affected by an unusual cold wave. Cement prices during December in key markets such as Mumbai and Delhi were more or less flat, on a monthly basis.

Better despatch figures, in turn, have helped cement stocks stay buoyant in tune with the broader market. For instance, Gujarat Ambuja gained 2.27 per cent to Rs 81.1 on Tuesday, while Grasim appreciated 3.87 per cent to Rs 1,429.

Investor sentiment for this sector was also helped by reports that prices in the key Mumbai market would shortly move up by around Rs 3 per bag. No doubt, cement companies are leveraging improved demand conditions that is usually witnessed in the post-monsoon season, but they are also grappling with higher freight costs.

A recent Supreme Court order has banned overloading of trucks, which has affected the cement industry. In addition, the SC has directed states to stop issuing gold cards. For most cement firms, this development is expected to result in freight costs moving up by 5-6 per cent or about Rs 2-3 a bag.

However, for cement players, a cushion for operating margins is expected to be provided by imported coal prices, which have been easing over the last few months.

Cement stocks are richly valued with Gujarat Ambuja trading at 17 times FY07 earnings and ACC's P/E of over 16. Grasim trades at a lower FY07 P/E of around 11 times.

Better valuations for shareholders

Sebi brought in a few market-friendly regulatory changes just at the end of 2005. One of the major announcement was to allow promoters with more than 55 per cent stake to hike their stakes up to 75 per cent.

Earlier, promoters with over 55 per cent stake could neither go in for creeping acquisitions nor preferential allotments to increase their stake, and they could only make an open offer for 20 per cent.

Sebi has now relaxed rules for market purchases as well as preferential allotments. Also, if an open offer takes the promoters' stake above 75 per cent during a restructuring exercise, such as a takeover, Sebi has allowed the stake to rise over 75 per cent, as long as public holding is increased to 25 per cent later.

There have been worries of some promoters using the participatory note route to shore up their holding, and with this change, they may not have a reason to do so any more.

With promoters being able to buy shares beyond 55 per cent, small shareholders are likely to realise better valuations for their shares.

In the other announcements, Sebi has allowed gold exchange traded funds, This will help small investors buy and sell gold, and also shore up the assets of the fund management industry, which have seen shrinking on the fixed income side.

Sebi has also allowed grading of IPOs by credit rating agencies though it is optional for the issuing company. Rating of IPOs or equities has been criticised in the past, but such a grading does have some benefits.

Compared with broker research, which is often euphoric about IPOs, this grading could provide retail investors with an independent view on the issuing company.