InvestorQ : Why is it that cement stocks like Ultratech, Ramco, ACC and Ambuja have all done so well in the last few months? Is it due to demand build-up?
Arusha Ray made post

Why is it that cement stocks like Ultratech, Ramco, ACC and Ambuja have all done so well in the last few months? Is it due to demand build-up?

Answer
image
2 months ago
Follow

As we speak, most of the cement stocks including Ultratech, ACC, Ambuja, Shree and India Cements are all close to their 52-week highs. Surely, that is not a freak trend and there is a bigger story building up. For example, Ultratech the largest cement company in India, has rallied 77% in last 6 months and market capitalization has scaled the Rs.200,000 crore mark. Even stocks like ACC, Ambuja, India Cements are all showing a lot of traction of late.

On the one hand, yes you are right that it is a demand story and let me tell you why it is one. The biggest chunk of demand for cement and cement products comes from residential and commercial construction activity. But was has driven cement demand is a huge boost in the form of massive infrastructure spend by the government. That has been massively boosting cement demand. However, builders are looking to either start new projects or at least complete the existing ones.

Why is this demand spurt important? The sharp spurt in demand and a supply lag at the same time, has led to rise in prices. In the month of February, most of the cement companies in the southern part of India hiked cement prices by 8% or nearly Rs.30 per bag. The cement price hike was also steep in the Eastern region of India notwithstanding the addition of major fresh capacities on the anvil.

Price hikes were more subdued in the North, West and central regions, with the price impact being lowest in the central region. The price hikes have been able to compensate the cement manufacturers for the spike in inputs costs in last one year. Also with higher capacity utilization, the fixed costs are getting absorbed and so the price hikes are straight going to the bottom line.

0 Views