InvestorQ : If the net profit of Ambuja Cement in Q3 is 34% why the share price decreased by more than Rs12 . If the result is positive why the share price decreased
Vivek Yadav made post

If the net profit of Ambuja Cement in Q3 is 34% why the share price decreased by more than Rs12 . If the result is positive why the share price decreased

Answer
user profile image
Mahima Roy answered.
11 months ago


This happens quite often in many cases where the profits are up but the stock prices go down. There is a reason for that. Stock prices are not driven by performance alone but also how the profit performance was compared to the expectations. For example, if the market expects profit to go up by 30% and the profit goes up by 20%, then the market will be disappointed and the price will fall. On the other hand, if a company profits are expected to fall by 15% but fall only by 10% then the stock price may actually go up. When you compare this will sound weird, but that is the way it is and it is all about expectations and not about actual performance.

Coming to the topic of Ambuja Cements, there were quite a few reasons for the fall in stock price despite the 34% rise in net profits. Firstly, the sales growth was just about 1.3% and cement companies get a lot of value for top-line growth. Also, cement realizations were down by nearly 2.3% in the quarter. Secondly,  among the cement companies, Ambuja carries the burden of a relatively higher cost structure and this largely negates its pricing power. Thirdly, the key market of Ambuja is Western India and that was under pressure due to unseasonal rains and flooding. Also, the stock had rallied sharply ahead of the results and this correction was more like a return to reality for the stock.