Cement Stocks Outlook: Range-bound with negative bias next week

[N.Sukumar]

MUMBAI - Cement shares are seen range-bound with an extended negative
bias next week on worries of fall in prices of the commodity and fears
of any announcement by government to rein in cement prices on the back
of soaring inflation.

India's headline inflation rate rose to a 13-year high of 11.05% for
the
week to Jun 7 from 8.75% a week ago.

However, some market participants are attributing sluggish move in
cement shares directly to fall in demand due to pause in construction
activity and high inflation and interest rate slowing it down further.

They do not expect any further announcement by government on cement
prices, as prices are expected to fall by 3-5 rupees in July.

Cement shares would continue to witness weak movement despite cheap
valuations due to rising uncertainty over pricing scenario. Surge in
inflation rate has made things worse for realty and construction
industry and thereby demand for cement as well.

Most cement shares are trading around or below their replacement cost
of $100 per 1 tn, and this can be a good opportunity for long-term
investors.

However, with fall in cement prices because of excess supply flowing
in
through proposed expansion and rising costs that cannot be passed on,
their margins will definitely be impacted.

In the last quarter, prices of fuel, coal, transportation, and
packaging
costs have risen significantly.

STOCK VIEW

We also expect cement shares to continue to weaken next week with some
support as most of these are already trading close to their bottoms.

Shares Of Madras Cements may outperform peers and rise 4-5%, as the
company will consider stock split and bonus share issue on Jun 30.

Shares of Ambuja Cements are seen finding major support at 80 rupees
and immediate resistance is expected around 91 rupees.

India Cements is likely to find support at 157 rupees followed by 155
rupees, while on any upside movement the stock may face resistance at
166 rupees.

ACC is also likely to continue to be range-bound between 608 rupees
and 645 rupees.

A major support for shares of Ultratech Cement exists at around 570
rupees while a major resistance is likely at 615 rupees.

Support for Grasim Industries' shares is expected around 2,130 rupees,
while resistance is seen at 2,250 rupees.

This week's closing prices, in rupees, of key cement shares, on
National Stock Exchange, compared with previous week:

Company Closing price Closing price % Change
Jun 20 Jun 13

ACC 625.25 635.50 (-) 1.6%
Grasim Industries 2,174.85 2,182.65 (-) 0.4%
Ambuja Cements 85.00 85.00 0.0%
India Cements 160.60 160.90 (-) 0.2%
Ultratech Cement 592.55 638.15 (-) 7.1%

Sensex 14571.29 15189.62 (-) 4.1%
Nifty 4347.55 4517.10 (-) 3.7%


N.Sukumar
Research Analyst