Cement Stocks Outlook: Seen sideways next week, Budget eyed

[K.Karthik Raja]

Cement Stocks Outlook: Seen sideways next week, Budget eyed

MUMBAI - Cement shares are seen moving sideways next week with a
negative bias, as investors and companies await outcome of the Budget.
Though odds of any major relief for the cement sector is bleak,
investors will still wait for further cues before any commitment to
these shares. However, the government is certainly expected to provide
boost to investment in infrastructure building, which will be a big
positive for the sector.
In Union Budget 2008-09 (Apr-Mar), the sector is expecting a 35%
abatement on excise duty and waiver of import duty on coal and pet
coke, key inputs in cement manufacture.
This, if passed on to consumers, can lead to around a 10-rupee
reduction in price of a 50 kg cement bag.
The sector is also seeking rationalisation of duty on cement at
12%
ad valorem.
Currently, cement makers pay specific excise duty of 350 rupees
per 1 tn on cement priced up to 190 rupees per 50 kg bag, and 600
rupees on cement priced above 250 rupees.
Ad valorem duty of 12% is applicable on the commodity priced
190-250 rupees.The differential duty structure was introduced in the
last budget to control the rise in cement price. Cement makers earlier
paid a fixed duty of 400 rupees per 1 tn.
Cement makers are hoping for some moderation in taxation.
Given the escalation in power and fuel costs on account of
spiralling prices of coal, the sector is also seeking lower customs
duty on coal import from the current 5%.
Among other key measures sought by industry body Cement
Manufacturers' Association are reduction in royalty on limestone from
the current 45 rupees per 1 tn.
Cement companies are also looking for supply of fly ash for 10
years at free of cost and a cut in value added tax on cement, and
clinker to 4% in line with steel sector.
.
STOCK VIEW
Frontline cement shares are likely to remain range bound with a
negative bias.Shares of Ambuja Cements are seen moving higher with
good support at 116 rupees, Technical Research adding that the stock
can touch 122 rupees.India Cements is seen moving in the 198-208
rupees range in the near-term.Shares of UltraTech are also seen
consolidating around 860-920 rupees.
To confirm strong positive trend, UltraTech shares need to close
above 910 rupees with good volume. Grasim Industries and Ambuja
Cements are better investment opportunities among cement players.
Given the limited ability of companies to increase cement prices
to pass on the cost increases,sticking to these industry leaders,
whose volumes are growing faster than the industry average.
Measures like captive power plants to reduce costs by Grasim and
Ambuja are likely to aid them in cushioning impact of cost escalation.
Valuations of these stocks as "very attractive" as they are
currently trading below 10 times of their one year forward earnings.

This week's closing prices, in rupees, of key cement shares on
National Stock Exchange, compared with the previous week:
.
Company Closing price Closing price %
Change
Feb 15 Feb 8
.
ACC 774.15 758.95 (-) 1.9%
Grasim Industries 2,788.60 2,825.25 (-) 1.3%
Ambuja Cements 118.05 115.95 1.8%
India Cements 200.95 208.70 (-) 3.7%
UltraTech Cement 892.05 901.65 (-) 1.1%
.
Sensex 17349.07 18115.25 (-) 4.2%
Nifty 5110.75 5302.90 (-) 3.6%


K.Karthik Raja
www.kences1.blogspot.com