Will hike in cement price impact stocks?

New Delhi: Cement prices are in midst of controversy, with cement companies denying hiking prices and stockists claiming that prices have been hiked. How will this impact cement stocks? Experts reveal more.

Cement companies seem to be playing 'hide and seek' with the markets, as there is lack of clarity on the issue of price hikes. Experts believe that the issue is getting murkier since manufacturers and big brands are denying any price hikes, whereas stockists claim that prices have been raised.

What's more, contract notes of many cement companies reflect a price hike. For instance, Gujarat Ambuja is selling cement at Rs 195-197 per bag over the last couple of days, inclusive of freight costs. This is higher than what its management claimed on CNBC-TV18 yesterday.

ED at Gujarat Ambuja, Anil Singhvi said, "I don’t think right now it will be right to say that prices have gone up, we haven’t increased the price in the last couple of days. In Mumbai, the last hike was about 10 days back, so there is not much truth in saying that prices are moving up the way they have been projected."

Cement:

Guj Ambuja (Feb)

-Up 16 per cent at 1.07 mt from 0.93 mt (YoY)

-Down 14.58 per cent at 1.07 from 1.26 mt (MoM)

Freight Cost

-SC ruling disallowed overloading of trucks

-Ruling expected to increase freight cost by 35 per cent

-Increase in cost to be passed through to customers

-Despatches have come down by 15-20 per cent

Cement manufacturers like Vasavadatta Cement and UltraTech have priced cement close to Rs 200 inclusive of freight.

However, worried stockists feel that prices have indeed been hiked. Sanjay Ladiwala of the Cement Stockists Asscociation said, "From the consumer’s point of view, I would be glad to see if there isn’t any more price hike. But in the last eight days, from the February 20 onwards till March 1, various brands in Mumbai specifically, have increased prices for different segments like; trade segment, non-trade segment. There is documentary evidence, which shows that the hike is anywhere between Rs 8-15 per bag."

But how would this price controversy turn out for cement stocks, experts have the answer.

Dilip Bhat of Prabhudas Lilladher: If hiked price levels sustain even for the next six to nine months, cement companies will make money

The question probably is not so much whether prices have gone up in the last eight days or not, or when would they move up, but what is more important is the price level of around Rs 200, which is something very phenomenal. Cost increase is to the tune of about Rs 8-10 per bag, so we believe that they are still pocketing something like Rs 18-20 per bag.

This was the price that manufacturers were probably expecting in May or June, so Rs 200 itself is a very respectable and profitable level. If it sustains even for the next six to nine months cement companies will make money.

If the current prices continue companies like Shree Cements could be earning about Rs 1000 per tonne. It is quite a bit, we are talking about them pocketing about Rs 20 per bag even if we were to discount all other cost increases.

Technical analyst, Sudarshan Sukhani: Midcap cement stocks doing well

Some of the midcap cement stocks are doing the right things. They are making new highs at prices that we could not even imagine three-four months ago. At this point it is very difficult to be negative about these stocks.

Almost every sector and every stock is moving up, some of them having larger moves, some of them are having smaller moves. The investor needs to understand whether they want to enter now or enter at more appropriate lower level.

Mihir Vora of ABN Amro AMC: Healthy volume growth seen in cement companies with price hike

We have a bit of exposure in cement stocks. In a couple of large markets like Delhi and Mumbai apparently movement of cement is not very easy because of strict crack down on overloading of trucks.

So to that extent, retail prices and prices at the wholesaler and dealer level within the cities are going up, but that does not necessarily mean that prices at factory gates are going up by the same amount.

I am sure that they are going up, but, maybe not necessarily at the same rate. All said and done, we are seeing is pretty healthy volume growth.