INDIA: Why cement stocks have hit a lifetime high

When all major companies in a sector touch a new 52-week or a lifetime high it is time to check the facts, especially at a time when everyone is talking of a slowdown breaking their backs.

The four major cement companies are either trading at all-time high levels or are at the 52-week high. While Ambuja Cement and Ultratech Cement are trading at levels never seen by the companies, ACC and Grasim are trading at their 52-week high.

Aided by a robust January performance cement stocks have hit an all-time high or a 52-week high today.

Cement stocks have never moved ahead of a market rally, so what is different this time around?

Despite slowdown in the housing sector, which is visible in the urban market, rural market continues to see good growth. This has resulted in a sharp jump in cement sales by most o companies. In fact cement sales for January grew 7 percent. Apart from the housing sector, pick up in infrastructure has also resulted in the sector’s growth.

ACC posted a 9 percent growth in January, taking its sales to 2.23 million tonnes, while Ambuja Cements clocked sales of 1.91 million tonnes, a growth of 4 percent. Ultratech posted an 11.4 percent growth at 3.7 million tonnes.

Growth in the current fiscal, between April and December saw a 5.9 percent growth at 160.3 million tonnes compared to 151.4 million tonnes in the previous year.

Strong January growth has been despite a severe winter in the North, which resulted in lower activity in the region. The cement sector now enters the peak season, which is expected to last till the start of monsoon. Hence growth in the sector is expected to grow further.

The other reason for the rise in share prices is the hike in cement prices in almost all zones. Cement prices are ruling at near all time high between Rs 270 and Rs 290 per 50 kg bag. Cement dealers are expecting prices to stabalise in this zone.

In its report on the cement sector Morgan Stanley has pointed out that the third quarter results of cement companies have been robust on the back of higher- than-expected pricing gain. Declining coal prices and strengthening of the rupee point to plateauing of costs. Morgan Stanley believes that costs have peaked which should bode well for margins as the companies enter the peak season.

Analysts believe that there is still enough steam left in the rally as these growth numbers and prices are seen when the construction and housing sector is in doldrums. As economy picks up cement stocks are expected to move higher.