February saw good dispatches by the cement makers, particularly Grasim Industries and Ambuja Cements. While Grasim’s dispatches rose 10% year on year to 29.19 lakh tones, Ambuja saw a growth of 11.27% at 16.49 lakh tonnes. In comparison, ACC’s dispatches grew by a modest 3.5% to 17.5 lakh tonnes.

All the same, the improving dispatches reflect the various stimulus measures taken by the government.

Going by dealers, demand was robust, driven by government projects and higher spending on account of the upcoming elections. Additionally, higher prices and peak season off-take helped dispatches.

Prices were higher on account of lack of supply for some days due to shortage of rail wagons for dispatches. Prices rose by Rs 3-8 per 50 kg bag during the month across regions, save for South India.

Experts say the price hike in February may have been made to maintain prices, considering cement companies had cut prices by Rs 3-7 per bag in January, partially passing on the benefits of excise duty cut to consumers.

All the same, the jury is out on whether the prices are sustainable, given that the industry is expecting an excess supply of around 35 million tonnes next fiscal. Analysts expect prices to start treading downward as monsoon commences.

The government cut excise duty by 2% on bulk cement last week. But this is unlikely to have a drastic impact in cement prices, as bulk cement constitutes around 8-10% of the total cement dispatches.

In the near term, outlook for cement stocks looks good, as prices remain firm and imported coal prices have declined. Grasim’s stock has appreciated by 10.14% to Rs 1,416.40 per share in the last one month, and ACC’s by 2.4% to Rs 540.75 per share. However, the Ambuja stock fell 3.28% to Rs 67.85 per share. The Sensex fell 8.2% over the same period.

While it is possible to see some relief in the short term, concerns of excess supply weigh heavy on cement stocks at large. Moreover, it will be some time before demand in the real estate space picks up.

Pallavi Pengonda/ DNA-Daily News & Analysis Source: 3D Syndication