Cement shares rally on gradual pick-up in demand; Birla Corp surges 11%
Thursday, May 28, 2020 - 5:11:57 PM

Shares of cement manufacturers were trading higher for the fifth straight session on Tuesday as the sector witnesses a gradual pick-up in demand since the lockdown was relaxed at the beginning of May.

Birla Corporation, JK Lakshmi Cement and UltraTech Cement were up between 5 per cent and 11 per cent, while Ramco Cements, HeidelbergCement India, ACC, Dalmia Bharat and India Cements were up in the range of 3 per cent to 4 per cent on the BSE. In comparison, the S&P BSE Sensex was up 0.60 per cent at 30,856 points at 12:45 pm.

In the past one week, most of the cement stocks have outperformed the market by surging in the range of 8 per cent to 18 per cent, as volume trends in the first two weeks of May are better than expectations in the North, Central, and East markets. In comparison, the benchmark index was up 2 per cent during the week.

After the demand disruption caused by the nation-wide lockdown, there has been a recovery in demand in the rural areas (35 per cent demand comes from rural markets), primarily driven by pre-monsoon work. Infrastructure demand, too, has started to improve as the work on national highways has begun across states.

Among individual stocks, Birla Corporation soared 11 per cent to Rs 453 today after the company’s EBITDA (earnings before interest, tax, depreciation, and amortization) per ton for the March quarter grew 31 per cent year-on-year (YoY) at Rs 1,045, led by higher realization.

The company registered a net profit of Rs 195 crore, up 51.9 per cent YoY despite dispatches grounding to a halt in later part of March and despite the loss of volumes since March 22 due to the situation arising out of Covid-19. Total income for the quarter declined 9.4 per cent YoY to Rs 1,718 crore as dispatches were suspended towards the end of the financial year due to the Covid-19 pandemic.

In response to the situation arising out of the pandemic, the management, with the aim of protecting profitability, guarding financial metrics, and conserving liquidity, is taking several initiatives to cut costs across the board and defer capital expenditure.

However, analysts at Emkay Global Financial Services expect a slowdown in the government’s infra spending and in the real estate sector, which may impact industry volumes in FY21. Near-term volume outlook looks challenging despite better-than-expected volume trends witnessed till date in May’20. There has been a price increase of 6- 16 per cent quarter-on-quarter in different regions in Apr-May’20, which may help cement companies. There may be a slowdown in demand due to the unavailability of laborers in the near-term, it added.

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