It’s Time to Book Prof­its on South-based Ce­ment Stocks

Tepid de­mand, lower ca­pac­ity util­i­sa­tion, weak prices in South make an­a­lysts cau­tious on these cos’ growth

The Economic Times - - Smart -

ET Ce­ment

ET In­tel­li­gence Group: In the last six trad­ing ses­sions, the stocks of South-based ce­ment firms such as TheRam­coCe­ments,NCLIn­dus­tries, In­dia Ce­ments, KCP and Sa­gar Ce­ments have in­creased by 5-30%.

These stocks came into the lime­light af­ter Sa­gar Ce­ments re­ported a strong year-on-year growth of 42% in ce­ment pro­duc­tion and 16% in dis­patches in March 2016. A sec­tion of in­vestors seems to be­lieve that these num­bers are a proxy for the kind of growth that can be ex­pected from ce­ment pro­duc­ers in the south re­gion. Such an as­sump­tion, how­ever, doesn’t seem to fac­tor in is­sues such as tepid de­mand and lower prices in the south­ern parts of the coun­try. In the north­ern, cen­tral, and western re­gions, ce­ment prices have in­creased by 15-30% in the past four months. But, they have fallen in the South by 4-10% dur­ing the pe­riod.

In ad­di­tion, the south re­gion has ex­cess ca­pac­ity at a time when the de­mand is not yet pick­ing up. Thirdly, due to low ce­ment prices, ca­pac­ity util­i­sa­tion across the south­ern states is ex­pected to be well be­low 55%, which is not prof­itable enough to en­hance mar­gins. Another point is that Sa­gar Ce­ments’ sales and pro­duc­tion growth in March 2016 was high com- pared to the lower base in March 2015 quar­ter. The com­pany re­ceived lime­stone min­ing lease per­mis­sion in De­cem­ber from the Andhra Pradesh gov­ern­ment which boosted its ce­ment pro­duc­tion.

Due to these fac­tors, an­a­lysts are not con­sid­er­ing a ma­jor growth in rev­enues for the South-based ce­ment com­pa­nies for the March quar­ter. They an­tic­i­pate sales of the South-based ce­ment firms to fall in the range of 3-13% for the March quar­ter on a year-on-year com­par­i­son. Given this, in­vestors need to be cau­tious while mak­ing fresh in­vest­ments in the stocks of these com­pa­nies.

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