Cement shares trade firm in weak market; Shree Cement hits record high

Shares of cement manufacturers continued their northward march in an otherwise weak market on Wednesday on hopes of demand recovery and healthy earnings.

Orient Cement (up 14 per cent at Rs 87.50), Sanghi Industries (10 per cent at Rs 43.30), Heidelberg Cement (9 per cent at Rs 202), and Star Cement (8 per cent at Rs 97), all rallied more 5 per cent on the BSE in intra-day trade on Wednesday.

Birla Corporation, Dalmia Bharat, JK Lakshmi Cement, Shree Cement, Ambuja Cements, India Cements, ACC, and UltraTech Cement were up in the range of 1 per cent to 4 per cent. In comparison, the benchmark S&P BSE Sensex was down 0.65 per cent at 40,604 points at 11:57 am.

Among individual stocks, Shree Cement hit a record high of Rs 22,680, up 3 per cent today. The stock surpassed its previous high of Rs 22,200 hit on July 1, 2019. In the past week, the stock has surged 12 per cent as Care Ratings reaffirmed the credit rating for the company’s commercial paper issue and bank facilities.

Despite no volume growth, the cement industry is expected to witness a healthy jump in profits year-on-year (YoY) during FY20, benefitting from steep price hikes undertaken in February 2019 (which helped 1HFY20) and benign cost environment.

For 2020, demand recovery would hinge around any improvement in government's infra spend and low cost housing - assuming rural demand stays steady.

Analysts at Elara Capital expects the cement industry to come in the black, with a gradual improvement in demand post a muted 9MFY20, primarily driven by improved government spend and revival in retail participation. Simultaneously, improved utilization levels will provide better pricing power to cement firms while operating cost would remain under control backed by lower fuel prices and improved operating leverage, the brokerage firm said in quarterly preview.

“We expect cement companies to report 1 per cent YoY volume growth in October-December quarter (Q3FY20) due to weak demand in October and November on account of weak construction activity (from unseasonal rains, low government spending and liquidity constraints). Demand has however improved in December supporting overall volume growth in the quarter”, Motilal Oswal Securities said in Q3FY20 preview.

Analysts at Antique Stock Broking said valuations inflate during times of cement price hikes, which invariably play out in first half of the calendar year i.e. during the busy construction season period. Likewise, valuations deflate during times of price cuts, which play out in second half of the calendar year.

“We saw a similar phenomenon in 2019, when sharp price hikes in 1HCY19 boosted the valuations of cement stocks earlier in the year, while as the hikes fizzled out in 2HCY19 most of the stocks witnessed de-rating in later half of the year,” the brokerage firm said in sector update.

KAKATIYA CEMENT 226.00 166.20 36.0
GUJ. SIDHEE CEM. 23.35 18.00 29.7
SAURASHTRA CEM. 47.00 38.95 20.7
DECCAN CEMENTS 318.00 271.75 17.0
ORIENT CEMENT 82.60 72.05 14.6
UDAIPUR CEMENT 12.85 11.26 14.1
HEIDELBERG CEM. 194.55 175.05 11.1
SHREE CEMENT 22542.75 20326.90 10.9
MANGALAM CEMENT 310.65 285.15 8.9
NCL INDS. 95.00 87.25 8.9
JK LAKSHMI CEM. 313.60 288.35 8.8
SHRI KESHAV 31.45 29.00 8.5
J K CEMENTS 1277.05 1177.80 8.4
SAGAR CEMENTS 573.30 534.00 7.4
SANGHI INDS. 40.10 37.75 6.2
INDIA CEMENTS 77.60 73.15 6.1
ANJANI PORTLAND 156.45 147.70 5.9
ULTRATECH CEM. 4292.00 4062.80 5.6
THE RAMCO CEMENT 792.55 752.30 5.4
BIRLA CORPN. 632.95 605.55 4.5

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel