X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Cement: Better times expected - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Apr 3, 2003

    Cement: Better times expected

    It was a relatively mixed year for the cement sector as a whole. Cement prices suffered throughout the year mainly due to overcapacity situation prevailing in the country. While demand was robust due to increased demand from highway project as well as housing infrastructure sectors, it still could not effectively prevent the considerable fall in prices of cement in the country.

    According to CMIE, while the production in the period between April and January FY03 has grown by a considerable 11%, the prices have fallen at a more drastic pace at nearly 12% (whole sale prices in the Mumbai market). If one were to observe the movement in prices on a quarter-by-quarter basis, prices touched their lowest levels in the second quarter of FY03. As a consequence, the performance of the major cement producing companies suffered the most in the second quarter (September quarter). Companies like Gujarat Ambuja, Grasim and ACC reported a 16%, 15% and 13% fall in realisations respectively during this period.

    Top 5 losers
    (Rs) Mar-03 Mar-02 Change
    India Cements 13 30 -57.0%
    Birla Corporation 12 17 -31.4%
    Mysore Cements 5 7 -24.4%
    Prism Cement 4 5 -20.6%
    Gujarat Ambuja 160 200 -20.2%

    This fall was however corrected in the third quarter and realisations are expected to be maintained at these levels in the fourth quarter too. If one were to look at the demand pattern, incremental demand was concentrated in the northern, eastern and western regions of the country for the first two quarters of FY03. This was largely because highway projects were concentrated in these regions. As these projects got completed, the focus shifted to the southern region. Consequently, in the last two quarters cement demand in the southern region has been strong due to incremental demand from the highway projects. Overall demand has been fairly strong from the housing sector across the country. Even poor monsoons in FY03 helped in a way as construction activity continued, ensuring cement demand.

    But the damage had already been done. While all the major cement companies were able to improve their volume sales, adverse realisations took a heavy toll on their operating margins and consequently their earnings. The adverse impact on earnings has been amply reflected in the movement of stock prices of these companies. Pivotal Gujarat Ambuja has lost as much as 20% off its stock price in FY03. ACC (10%) too has been weak on the bourses. Unlike Gujarat Ambuja, ACC does not have strong operating margins to protect itself from adverse movement in realisations and hence the impact on its earnings has been more severe than Gujarat Ambuja.

    Diversification pays
    PAT (Rs m) 9mFY02 9mFY03 Change
    ACC 779 452 -42.0%
    Gujarat Ambuja 977 741 -24.2%
    Grasim 2,236 3,670 64.1%
    L&T 1,600 1,674 4.6%

    Diversified cement majors L&T and Grasim on the other hand, managed to gain ground in FY03. In the case of Grasim this can be attributed largely to the diversified nature of its business. While the cement division of the company suffered in FY03, its VSF division has done extremely well. So much so, that the earnings of the company have improved significantly in FY03. L&T on the other hand, has been volatile in FY03 largely due to speculation regarding the demerger of its cement division. The issue of the demerger came up when Grasim made an open offer for L&T at Rs 190. This met with stiff resistance from the majority shareholders in L&T, i.e. financial institutions. Due to the continuing impasse regarding the demerger, the stock has currently settled marginally above its March 2002 levels.

    Top 5 gainers
    (Rs) Mar-03 Mar-02 Change
    Mangalam Cement 6.75 3.5 92.9%
    Grasim 330.7 288.9 14.5%
    L&T 184.65 180.8 2.2%

    What we can observe from the performance of cement stocks in the last year is the fact that diversified players like Grasim and L&T have done better in an adverse realisations scenario compared to their pure cement peers like ACC and Gujarat Ambuja. In the short term, the oversupply situation is likely to sustain especially in the western region where a new capacity (Sanghi Cements) has come online. Also, the lag effect of poor monsoons in FY03 is likely to take a toll on cement demand at least in the first two quarters of FY04.

    In the long term however, due to lower planned capacity additions and a robust demand growth for cement in the country, the imbalance between demand and supply in expected to correct soon. Also the main driver for cement demand, the housing sector, is likely to see continued demand owing to the existing tax incentives on loans and the demand supply gap existing in the housing market. In addition to this, government’s initiative to improve the highway, port and airport infrastructure in the country will go a long way in stimulating cement demand in the future. Until then, stock prices of pure play cement companies may languish at these levels.

     

     

    Equitymaster requests your view! Post a comment on "Cement: Better times expected". Click here!

      
     

    More Views on News

    UltraTech: Post-Acquisition Cement Capacity Augmented to 93 MTPA (Quarterly Results Update - Detailed)

    Aug 11, 2017

    UltraTech Cement completed the acquisition of cement plants of Jaiprakash Associates Limited (JAL) and Jaypee Cement Corporation Limited (JCCL) during the quarter ended June 2017.

    Ambuja Cement: Fall in Other Income Drag Bottomline Lower (Quarterly Results Update - Detailed)

    Aug 11, 2017

    While topline witnessed growth on the back of higher cement sale volumes, a 50.5% YoY fall in other income weighed on Ambuja's bottomline during the quarter ending June 2017.

    ACC: Cementing Growth through Capacity Expansion and Favorable Sectoral Developments (Quarterly Results Update - Detailed)

    Jul 20, 2017

    Expanded capacity helped ACC strengthen its market presence in eastern region during the quarter ended June 2017.

    UltraTech: One of the Weakest Quarters in Years (Quarterly Results Update - Detailed)

    May 18, 2017

    Cement demand was weak because of subdued housing demand, volatile cement prices, and rising fuel costs.

    Ambuja Cem: Net Profits zoom up 361% YoY During Jan-March Quarter (Quarterly Results Update - Detailed)

    May 8, 2017

    Stock price jumps up on Ambuja-ACC merger talks...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    COMPARE COMPANY

    MARKET STATS