Stocks of major cement manufactures may see some profit booking next week, but the fall will be limited as the sector's strong fundamentals will keep investor sentiment upbeat. Leading the broad market rally, cement counters have gained significantly over the past few weeks, with most stocks trading close to their all-time highs, increasing expectations of profit sales. Fundamentally, however, cement companies appear to have everything going in their favour, making the sector a favorite among investors. Cement prices have remained strong for the past few months and are expected to rise further in coming weeks as the sector enters peak demand season. Typically, cement demand rises in Oct-Nov as construction activity picks up pace after a slump for three months during monsoon. Cement prices are also seen rising as companies will look to pass on the impact of the diesel price hike to consumers.
Yesterday, cement manufactures in Andhra Pradesh raised prices by 25 rupees per 50-kg bag, citing higher fuel prices and input costs. We believe Cement prices may be raised in other parts of the country next week. Investors are also bullish on the cement sector in anticipation of strong Jul-Sep earnings. We expect all companies in our coverage universe to report robust growth, except for India Cements, due to decline in sales volume and lower increase in realisation. Quarterly performance of Shree Cement would be better driven by robust sales volume growth and higher realisation. Ambuja Cement and Ultratech Cement's result would be better as cement prices in Gujarat have shown a rising trend. ACC's results would be driven by a lower base in 2QFY12 (Jul-Sep).
