Cement Stocks Outlook: Sideways next week; India Cements Q1 eyed

[B. Karthick]

Cement Stocks Outlook: Sideways next week; India Cements Q1 eyed
Saturday, Jul 26

Cement shares are seen moving sideways next week with a negative
bias as performance of most cement makers for Apr-Jun reflected
sliding profitability due to spiralling cost pressure and inability to
hike prices adequately.
Among cement makers that have detailed Apr-Jun earnings so far,
operating margins of ACC, Ambuja Cements, and Grasim Industries have
declined 600-700 basis points from a year ago.
Impending expiry of July derivative series is likely to provide
some upside due to rollover pressure, as build up of open interest was
significant in July contracts of these shares ahead of Apr-Jun
earnings.
There are no potential upside triggers for the sector and despite
the around 45% fall in most cement shares since January, it is too
early to buy these stocks.
Indian cement makers enterprise value per 1 tn sliding to $75-$185
from $120-$215 in May.
The industry to face a supply surplus by 2009-10 (Apr-Mar)
following capacity addition worth 32 mln tn in 2008-09 and 47 mln tn
in 2009-10 even after considering delays in expansion.
India Cements that may detail its Apr-Jun earnings Wednesday is
likely to report a 23% year-on-year fall in net profit to 1.41 bln
rupees due to flat sales volume and rising cost pressure.
The company's revenue for the quarter is seen at 8.26 bln rupees,
down 1%.

STOCK VIEW
India Cements to face resistance at 162 rupees next week with
support seen at 139 rupees.
Shares of ACC are likely to find immediate support at 520 rupees
and major one at 483 rupees next week.
Shares of ACC have potential to touch 625 rupees in the near-term,
however, topping major resistance of 580 rupees is crucial.
Shares of Ambuja Cements are likely find support at 79 rupees,
while resistance remains at 85 rupees.
Shares of UltraTech Cement are expected to witness major
resistance at 578 rupees, while support is likely at 518 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
Jul 25 Jul 18

ACC 573.35 539.80
6.2%
Grasim Industries 1,837.05 1,715.90 7.1%
Ambuja Cements 82.40 82.90 (-) 0.6%
India Cements 150.25 135.80 10.6%
Ultratech Cement 550.90 539.50 (-) 2.1%

B.Karthick,
Research Analyst.