Cement stocks run out of favour

There seem to be no takers for shares of cement companies. Foreign institutional investors, local mutual funds and retail investors are reducing their exposure to cement stocks.

No cement share has posted any significant appreciation in the last one year. ACC is trading near its 52-week low of Rs 127.50, Gujarat Ambuja Cement is ruling in a range between Rs 160 and Rs 165, Madras Cement trades around Rs 3400-3500.

The share prices of all other small and medium cement companies have actually declined in the last one year.

Cement majors such as Grasim Industries, Larsen & Toubro and Century Textiles have managed to hold prices but that is largely on account of their diversified business lines.

The lukewarm response to cement stocks is largely due to the slump in cement prices since December 2002. Analysts expect no improvement in prices till the second quarter of 2003-04, largely due to overcapacity in the industry.

The entry of the Sanghi plant into trial production in March 2003 has added to the industry's capacity. The budget proposals have also been harsh on the cement sector.

Analysts see no change in these `fundamentals" in the next two-three quarters and the consensus is that the cement sector is likely to underperform the broad markets.

Cement production and dispatches have shown a single digit growth in the last two years. While production during the financial year ended March 2003 increased 8.74 per cent, dispatches rose 8.50 per cent over the previous year.

The single-digit growth in cement production was largely on account of subdued prices. Cement prices have fallen across key markets like AP, Maharashtra, Rajasthan, UP and Gujarat. Rates remained stable in the East, while they have risen in Tamil Nadu.

The low cement prices, however, did not dissuade cement manufacturers from stepping up capacity utilisation to 81.55 per cent in 2002-03 from a near 10-year low of 78.83 per cent in 2001-02.

Companies also went ahead with their capacity expansion programmes. Cement capacity during 2002-03 increased 5.12 per cent to 136.55 million tonne.

Cement majors, except Larsen & Toubro, recorded a double digit growth in production and dispatches. Gujarat Ambuja Cement, which increased cement capacity 13.62 per cent to 12.166 million tonnes, recorded an over 21 per cent rise in cement production and dispatches.

Grasim registered a 16.08 per cent rise in production and a 15.90 per cent rise in dispatches. ACC's production and dispatches increased around 13 per cent each while Madras Cement recorded a 11 per cent growth.

Larsen & Toubro, failed to utilise its huge capacity and recorded a mere 0.73 per cent rise in production and a 0.58 per cent rise in dispatches in 2002-03.

However, India Cement, Lafarge, Prism Cement, Mehta Cement group and Andhra Cement saw a drop in production, while J K group, Century

Textile, Zuari Cement and Mangalam Cement reported a marginal 1-2 per cent rise.

ACC continued to be the largest cement producer in India with production of 13.89 million tonne.

On the back of higher capacity utilisation of 86.42 per cent (77.06 per cent), the company increased market share from 11.99 per cent in 2001-02 to 12.47 per cent in 2002-03.

L&T, on account of lower capacity utilisation of 73.84 per cent (78.31 per cent), shed its market share from 11.66 per cent to 10.80 per cent.

Grasim increased its share from 9.95 per cent to 10.62 per cent while Gujarat Ambuja Cement's market share increased from 9.60 per cent to 10.70 per cent.