Cement Stocks Outlook: Seen sideways next week; downside limited

[suguhopes]

MUMBAI - Cement shares are seen moving sideways next week, in line
with the broad market, amid absence of sector-specific triggers.

The downside, however, is seen limited with most of these shares
hovering around their 52-week lows.

Most negative factors such as weak outlook on pricing of cement and
the likely fall in off-take because of rising interest rates hitting
the demand in the housing and construction sector are also factored in
the current prices.

However, a sharp movement in cement shares on either side is unlikely.

Cement prices are likely to witness weakness in the monsoon season
because of the halt in construction activity.

Although recent reports said cement prices are likely to rise by
around
3 rupees per 50-kg bag in Gujarat and Maharashtra, none of these
markets have witnessed any such hike.

Chances of any price hike in the monsoon season are low and if at all
there is any increase,our view that the hike in the western region is
unlikely to be sustained because of slack demand.

Earnings of cement companies in Apr-Jun are also likely to be weak
with a fall in profit and net realisation due to muted price hikes
during the quarter and rising cost pressure.

Among frontline cement makers, Shree Cement and Ultratech Cement will
detail their earnings on Friday.

Ultratech Cements is seen reporting a 19% year-on-year fall in net
profit for the quarter at 2.09 mln rupees, while sales are seen at
14.49 bln rupees, up 6.2%, Sharekhan said in a pre-earnings note to
its clients.

Shree Cement is expected to report a revenue growth of 29.9% at 5.53
bln rupees on the back of a 26.0% rise in volume on account of higher
capacity expansion.

However, due to a decline in operating margin and higher provision for
depreciation, the net profit is expected to decline 26.7% to 857 mln
rupees.

STOCK VIEW

We are also of view that most cement shares are likely to witness
sideways movement next week with limited downside.

Shares of ACC are seen getting support at 480 rupees after immediate
supprt at 530 rupees.

The stock can move up to 625 rupees. However, topping that resistance
is likely to be tough next week.

Ultratech Cement is seen facing strong resistance at 610 rupees, with
support at 530 rupees,if the stock falls below this level it can move
towards 512 rupees.

Immediate support for India Cements is expected around 125 rupees and
major support is seen at 119 rupees. The stock has potential to touch
138 rupees in the near term.

Shares of Ambuja Cements are expected to touch 87 rupees in the next
few sessions. However, they will continue their consolidation process.

The shares are likely to get major support in the band of 73-76 upees,
they added.

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 11 Jul 4

ACC 544.70 477.35 14.1%
Grasim Industries 1,711.25 1,690.85 1.2%
Ambuja Cements 80.45 74.80 7.5%
India Cements 133.65 130.80 2.2%
Ultratech Cement 552.10 537.25 2.8%

Sensex 13469.85 13454.00 0.1%
Nifty 4049.00 4016.00 0.8%


N.Sukumar
Research Analyst