Ce­ment firms roll back price hikes, give up their pre­mium val­u­a­tions

Mint ST - - PLAIN FACTS -

the best-case sce­nario, the mar­ket can ab­sorb only around ₹10/bag. Prices in east and west re­gions were flat from a month ago. On an av­er­age, ce­ment prices across In­dia were ₹293/bag in Jan­uary, slightly lower than ₹294/bag in the pre­vi­ous month, said the re­port.

De­cem­ber quar­ter earn­ings re­ported so far show sub­dued growth in re­al­iza­tions. While com­pa­nies with a pan-in­dia pres­ence have seen some growth in their re­al­iza­tions, re­gional firms, es­pe­cially those based in the south, have per­formed dis­mally. Al­though a re­duc­tion in prices of petroleum coke and diesel do pro­vide some respite to mar­gins; for sig­nif­i­cant mar­gin re­cov­ery, re­turn of pric­ing power is the key, say an­a­lysts.

Mean­while, ce­ment de­mand is likely to be sub­dued in the run-up to the gen­eral elec­tion due to un­avail­abil­ity of funds and the lack of new project launches. This lim­its the scope of price hikes for the rest of the cur­rent fis­cal year. How­ever, de­mand is ex­pected to im­prove af­ter the gen­eral elec­tion. Fur­ther, the re­cent mea­sures an­nounced by the gov­ern­ment to boost the real es­tate sec­tor would aid de­mand growth. In­vestors can only hope that im­proved de­mand re­sults in price re­cov­ery.

Speak­ing of val­u­a­tions, large-cap ce­ment stocks are trad­ing at a one-year for­ward EV/ Ebitda of around 9-17 times, far lower com­pared to the highs last year. EV stands for en­ter­prise value and Ebitda is short for earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­za­tion. Even so, val­u­a­tions still seem unattrac­tive and the only way in­vestor in­ter­est will rise is if there is a mean­ing­ful in­crease in ce­ment prices.

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