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The Christmas celebrations seem to have already begun in the cement counter.
Shares of most mid-size companies jumped sharply on expectations that the recent rise in demand will help companies to raise prices. With the most of the large-cap stocks ruling at stiff valuation, money is trickling into mid-cap space, said analysts.
On Monday, JK Lakshmi, Madras Cements, Sagar Cements, Shree Digvijay Cement and JK Cement hit their 52-week high. However, UltraTech fell one per cent to Rs 1,956. The clear mandate for BJP in Gujarat will help the Government to roll out some of its plans such as building five million houses over five years, build metro rail services, ramp up areas under irrigation and increase port capacity, said analysts.
Gujarat accounts for 7-8 per cent of the all-India cement sales and 35-40 per cent of the western market which also includes Maharashtra and Goa. Cement consumption in the State has registered a compounded annual growth rate (CAGR) of 9-10 per cent compared to all India CAGR of 8.5 per cent.
Pricing power
Mihir Jhaveri, Research Analyst, Religare Institutional Research said the likely cement up cycle would strengthen pricing power in the sector. “Companies in the northern and western markets are better placed as we expect utilisation levels of 90-97 per cent in these regions, signifying greater incremental demand compared to supply,” he said.
The uptick in cement demand bodes well for Jaiprakash Associates, which plans to sell its units in Gujarat and Andhra Pradesh. Jaypee Cement, a subsidiary of Jaiprakash Associates, operates two plants in Sewagram, Kutch and Wanakbori, Gujarat, each with a capacity of 2.4 million tonnes and it has 5-million-tonne capacity in Andhra Pradesh's Krishna district.
The deal, if it goes through, will help consolidation in the cement industry and provide more pricing power for companies.
In September, Dalmia Cement acquired 1.5 million tonne of Meghalaya-based Adhunik Cement for Rs 560 crore at a valuation of $120 a tonne.
suresh.iyengar@thehindu.co.in
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