Foreign institutional investors (FII) have increased their holding in leading cement companies during the March quarter compared to December quarter. This was largely due to an expectation of pick up in demand from renewed infrastructure activities.
FII raised their holding in Aditya Birla Group company UltraTech Cement, ACC, Ambuja Cement and India Cement. All these companies have posted better financial performance in the March quarter aided by the improvement in demand.
UltraTech Cement net profit in the March quarter was up 19 per cent, while that of India Cements was up 15 per cent. However, ACC and Ambuja Cement profit was hit due to higher provision for depreciation.
Bets on hope
Mr Deven Choksey, Managing Director, KR Choksey Shares and Securities, said FII have increased their holding in top cement producers as they know that these companies will benefit from the sudden pick up in demand.
“There was absolutely no possibility of new capacity coming up overnight to meet the renewed demand, so it was clear only these frontline companies with huge capacity and pan India presence will benefit,” he said.
Going ahead, there is a possibility of 10-15 per cent appreciation in stock price of these stocks, he added.
DEMAND TO CONTINUE
According to the Cement Manufacturers Association, cement demand was up 10 per cent in the March quarter compared to last year. With pick up in demand, cement makers have managed to pass on the increase in raw material prices, operational and other incidental costs to end consumers. Prices were marked up by Rs 40-50 per 50-kg bag across the country in the March quarter.
Cement demand growth in this fiscal was up seven per cent at 179 million tonnes (168 mt). However, the capacity utilisation for the FY12 was lower at 75 per cent against 78 per cent last year due to new capacity additions.
Mr Ajay Srinivasan, Director, Crisil Research, said “We expect demand off-take to revive gradually to about eight per cent in 2012-13. Operating rates are, however, forecast to come down further to about 72 per cent due to capacity additions to the tune of 25 million tonnes expected during the year.”