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Cement stocks rally on price rise expectations

Deeptha Rajkumar

Rates expected to increase by Rs 15-20 per bag

Mumbai , Sept 14

Expectations of a further rise in cement prices led to sustained buying in cement stocks on the bourses on Thursday.

Counters such as Grasim, ACC, Ultratech and Jaiprakash Associates all saw large volumes of shares change hands on the BSE.

Industry sources said that cement prices are expected to rise by Rs 15-20 per bag by March 2007 on the back of sustained demand.

Prices, which have seen a rise of Rs 42 per bag over the last eight months since December 2005, are yet to peak given that incremental demand is set to exceed incremental supply till 2008-09.

Cement analysts expect prices to remain firm for the next one year, as no major capacity is expected to go on stream until end-2008 or early-2009.

Some analysts also attributed the current deficit in supply to a certain extent to Jaiprakash and Grasim's greenfield expansion plans having been delayed by at least two quarters.

In addition to the normal 10 per cent CAGR expected demand growth, recent approvals to 144 SEZs over 250,000 acres could lead to 10-15 m tpa of cement demand from 2007-08, said sources.

"The supply glut which was anticipated by end-08 will now be postponed to 09.

Hence the price peak out expected in the first half of 08, can now be expected in early to mid-09," a senior analyst tracking the sector said.

Despite heavy rains, retail cement prices have stabilised at the first quarter levels of Rs 200 a bag.

"This, coupled with additional demand, leads us to believe that stocks might actually continue to outperform for another year," said an analyst with a leading domestic brokerage.

Given the visibility in earnings over the next two years and the robust scenario, there are also expectations of at least a couple of rounds of earnings upgrades up to 2007-08.

Industry sources also said that cement dispatches posted a strong 10.45 per cent year-on-year growth in year to date 2006-07 and 11.23 per cent year-on-year in August.

Grasim ended at Rs 2,391.80, up 2.78 per cent, with 1,25,685 shares traded on the BSE.

Ultratech ended the day at Rs 826.40, up 5.34 per cent (67,399 shares), while ACC ended 1.41 per cent higher at Rs 944.45 (3,26,798 shares).

Jaiprakash Associates ended at Rs 462.65 (4,15,625 shares), while Gujarat Ambuja ended at Rs 115.05, up 1.77 per cent (6,42,054 shares).

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