The Hindu Business Line : Govt tough talk weakens cement counters

Analysts' take Manufacturers may not hike prices at least for some time, said Mr Kunj Bansa of Relegare
An extremely bad move by the Government, said Mr Ajit Motwani, of Sharekhan Ltd

Mumbai , May 12

Fears that cement manufacturers may be forced to put on hold their greenfield projects following the Government's move to bring down cement prices, resulted in nervous selling in cement stocks on the bourses on Friday.

Shares of all the top counters in the sector including Gujarat Ambuja, ACC, Grasim, India Cements suffered losses after the Government asked cement makers to come up with a proposal to bring down the cement prices by Monday.

"At least for some time, manufacturers may not be able to hike prices," said Mr Kunj Bansal, Chief Investment Officer, of stock broking firm Relegare.

"Government can create indirect pressures. But, I don't think this will have a significant impact on the prospects of cement companies," he said.

However, manufacturers are not likely to announce drastic reduction in prices immediately, analysts said.

Gujarat Ambuja shares fell by 7.50 per cent to Rs 106 from Rs 114.60 while ACC lost 7.09 per cent to Rs 897.20 from the previous close of Rs 965.65 on the BSE.

Shares of other cement companies also fell after investors interpreted the Government intervention as "retrograde" and a move back to the old regulated environment.

UltraTech Cement fell 4.81 per cent to Rs 720.65 (Rs 757.05), India Cements was down 4.18 per cent at Rs 205.10 (Rs 214.05) and Madras Cements dropped 3.30 per cent to Rs 2,868.20 (Rs 2,983.60). Prism Cement (down 4.65 per cent to Rs 39), JK Cement (Rs 185, a fall of 2.04 per cent) and Mysore Cement (down 3.30 per cent to Rs 45.45) were also faced selling pressure.

"This is an extremely bad move by the Government," said Mr Ajit Motwani, a senior research analyst with Sharekhan Ltd, adding that any decision to bring down the prices will force manufacturers to put on hold their capacity expansion plans.

"Greenfield projects will be feasible only at Rs 200 per bag," he said. Cement prices have risen by about 50 per cent in the last four months to over Rs 200 per bag of 50 kg.

Though the prices were ruling at Rs 200 per bag, the manufacturers were getting only at about Rs 125 while the remaining amount goes out as excise duty, sales taxes etc., said Mr Motwani.

Similarly, the Government's warning that it would stop cement exports will not result in huge increase in domestic supply. "Exports constitute only a small portion of the total market," Mr Bansal of Religare said.

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