Cement stocks have been outperforming benchmark indices in the ongoing calendar year as they have given average return of over 20 per cent during January 1- September 19. On the other hand, BSE Sensex have risen nearly 9 per cent during the period. Brokerage firm Motilal Oswal is further bullish on the cement sector as industry dynamics are turning favourable due to slowing capacity addition and expected demand recovery. Ultratech Cement, Dalmia Cement and JK Lakshmi Cement continued to remain its preferred picks in the sector.
On a year-to-date basis, Kakatiya Cement shares surged the most 162 per cent to Rs 396.45 till September 19. Mangalam Cement, Heidelberg Cement and Burnpur Cement gained 69.54 per cent, 65.75 per cent and 55.32 per cent, respectively, since the beginning of the ongoing calendar year. Other cement majors such as The India Cements, The Ramco Cements and Shree Cement gained 52.84 per cent, 48.94 per cent and 48.10 per cent between Jan 1-Sept 19.
The latest quarter ended June 2016 stood in favour of cement companies as they have registered over 80 per cent (average) year-on-year rise in bottomline figures. JK Cement posted net profit of Rs 60.85 crore for the quarter under review against Rs 1.06 crore in the same quarter last year. Other cement majors, Shree Cement, Ramco Cement and Ultratech Cement registered 387.63 per cent, 59.96 per cent and 29.17 per cent year-on-year rise in net profit during April-June period. Motilal Oswal in a research report said, “We expect earnings to surprise the market positively, led by better-than-estimated price improvements, particularly in the northern, central and western markets.”
On the other hand, average expenditure of cement companies stood stable in the quarter ended June 2016. During July-September period, average fuel prices for cement firms have increased by 18-30 per cent on quarter-on-quarter basis, led by firm global coal prices. The brokerage house believes global coal prices are likely to remain firm till December-end due to lower supply, as rains are likely to impact Australian production, as well as higher demand due to winter restocking.
India consumes around 18 million tonnes of petcoke per year, of which 12 million tonnes is produced domestically. Petcoke is widely used as an alternative to coal in power plants, cement kilns and blast furnaces. Motilal Oswal believes that cement companies with higher petcoke consumption to tie up with US and Middle East refiners for procuring petcoke as RIL’s petcoke-based gasifiers are expected to be commissioned by the end of the ongoing financial year. The first of its eight gasifiers is likely to get commissioned by December 2016. Once all of its gasifiers are commissioned, RIL would consume 8.5 million tonnes of petcoke per year, resulting in limited supply of petcoke by RIL.