InvestorQ : Why are cement stocks trading at yearly lows at this juncture?
Arti Chavan made post

Why are cement stocks trading at yearly lows at this juncture?

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Rutuja Nigam answered.
4 weeks ago
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Check out this table of cement stocks and how they have fared and how they are trading close to their yearly lows. This is true of most cement stocks.

Cement Company

Stock Price

52-Week High

52-Week Low

Ultratech Cement

Rs5,549

Rs8,269

Rs5,410

Shree Cement

Rs19,790

Rs31,470

Rs19,502

Dalmia Bharat

Rs1,239

Rs2,549

Rs1,228

JK Cements

Rs2,078

Rs3,838

Rs2,045

India Cements

Rs165

Rs260

Rs151

Nuvoco Vistas

Rs297

Rs578

Rs292

Grasim Ltd

Rs1,328

Rs1,930

Rs1,298

It is not just about Ultratech expansion plan, while that is one factor. The problems were already there. Cement companies were already under tremendous cost pressures. For instance, power, freight and fuel is a major input cost for cement companies and all these have literally gone through the roof in last few quarters. While prices are increasing, they are helping top line to growth but operating profits are still under pressure. After all, too much of price hikes invites notices from the CCI for cartelization in pricing.

But the trigger was the Ultratech expansion plan which envisages expanding its cement capacity by another 22.6 MTPA to 159.25 MTPA. This was almost necessitated after Adani group acquired ACC and Ambuja shares from Holcim for $10.5 billion. This has made Adani the second largest cement player with 70 MTPA cement capacity. The immediate challenge for Ultratech is that the capex plans could delay becoming net cash positive by 2024. Now that target is only likely to be achieved by 2026 and that has been a bearish trigger.

The glut in supply is likely to shift the pricing power from the producer back to the consumer and that is not great news for cement companies. Higher input costs are likely to enhance the variable cost of cement manufacturers by 10-15%. That possibly explains why most large cement stocks have fallen between 8% and 13%. The negative triggers were always there and the Ultratech expansion has just given the trigger.

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