Stocks of major cement companies are expected to trade higher next week, as demand for the commodity is seen reviving on the back of good monsoons. The recent price hike by cement companies is also being seen as a positive sign. On Monday, cement companies hiked prices by 5-10 rupees per 50-kg bag on demand revival. Cement prices were earlier hiked in September by 10 rupees per bag before the start of the festive season. Every year, cement prices increase after the monsoons as construction activity picks up. With a recovery in pricing from September onwards, profitability is likely to improve in H2FY14 (Oct-Mar). A favourable base in H2 would also shore up growth. We expect EBITDA/tn to improve by at least 100-150 rupees/tn QoQ next quarter.
Companies have been facing low realisations due to a slump in volume offtake for some months now, and the same was reflected in their Apr-Sep earnings, but with good monsoons this year, demand is reviving, especially in rural areas. There will also be some reaction around Ambuja Cements in regards to developments around its proposed deal with parent Holcim. Late Thursday night Ambuja Cements said, its minority shareholders approved purchase of 1.36 bln shares of Holcim India Pvt Ltd at a price of 25.63 rupees a share and also approved the amalgamation of Holcim India with Ambuja Cements thereafter.
