India: Cement stocks rise as demand recovers

Indian cement manufacturers are set to continue the strong performance which has seen their stocks outperform the BSE Sensex by a factor of ten over the past month.

In this period, the Economic Times reports, India Cements’ shares are up 23 per cent, ACC is up 18 per cent, JK Cement and JK Lakshmi Cement are up 16 per cent, Ramco Cements is up 14 per cent and Ambuja Cements is up 12 per cent. The market as a whole, as tracked by the Bombay Stock Exchange’s Sensex index, is up just 1.2 per cent.

Analysts attribute the strong performances to a drop in input costs, a recovery in demand and a wave of consolidation throughout the industry. However, although margins are improving, excess capacity is still exerting downward pressure on prices.

Nirav Sheth of Edelweiss Securities said: "In the last couple of years, demand has completely surprised on the downside and that is about to change. I still believe the real pick-up in cement prices is some time away. We do tend to track the utilisation figures and at least our view was that we were probably a year away from the time when a bumpup in utilisation level would lead to a sharp uptick in prices. But you have to put this in context of what the valuations are right now”. 

In a statement, ICICI Securities added: “Sustenance of demand recovery, especially in south India, and price recovery in north India, government intervention, and industry consolidation are key things to watch out for".