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Stocks of major cement companies are seen trading rangebound with a negative bias next week as the sector enters seasonally weak period. Cement demand dries up for a few months starting July, as construction activity slows in most parts of the country due to monsoon rains. Additionally, expectations of a muted financial performance in Apr-Jun may weigh on the sentiment for cement stocks. Cement companies will post their Apr-Jun earnings later this month. Cement demand failed to pick-up in 1QFY2014 (Apr-Jun) as well, with macroeconomic scenario continuing to remain weak. The early arrival of monsoon in many parts of the country has impacted the pre-monsoon demand which is generally witnessed during June-end. Although prices have been hiked, they look unsustainable due to poor cement off-take at these price levels. The advent of monsoons is expected to result in further slowdown in cement demand.
Cement companies have continued to witness low demand for over six months, which is typically a seasonally strong period, as real estate and infrastructure activity remained subdued amid poor macroeconomic conditions. In addition, high costs have continued to weigh on profit margins of cement makers. Cement companies are likely to report weak profits in Q1FY14 (Apr-Jun) as demand remains lacklustre and realizations muted. We expect EBITDA/t (earnings before interest, tax, depreciation and amortisation per tn) to decline by 340 rupees year-on-year and 20 rupees quarter-on-quarter for our cement universe. Most analysts are of the view that there may not be much improvement in cement companies' performance before November, when demand is expected to pick up on seasonality. There may not be a significant decline in cement stocks next week, as investors remain bullish on the sector in the long term. Also, some negative impact of the anticipated poor Apr-Jun earnings has already been factored in by the Street.
Stocks of major cement companies are seen trading rangebound with a negative bias next week as the sector enters seasonally weak period. Cement demand dries up for a few months starting July, as construction activity slows in most parts of the country due to monsoon rains. Additionally, expectations of a muted financial performance in Apr-Jun may weigh on the sentiment for cement stocks. Cement companies will post their Apr-Jun earnings later this month. Cement demand failed to pick-up in 1QFY2014 (Apr-Jun) as well, with macroeconomic scenario continuing to remain weak. The early arrival of monsoon in many parts of the country has impacted the pre-monsoon demand which is generally witnessed during June-end. Although prices have been hiked, they look unsustainable due to poor cement off-take at these price levels. The advent of monsoons is expected to result in further slowdown in cement demand.
Cement companies have continued to witness low demand for over six months, which is typically a seasonally strong period, as real estate and infrastructure activity remained subdued amid poor macroeconomic conditions. In addition, high costs have continued to weigh on profit margins of cement makers. Cement companies are likely to report weak profits in Q1FY14 (Apr-Jun) as demand remains lacklustre and realizations muted. We expect EBITDA/t (earnings before interest, tax, depreciation and amortisation per tn) to decline by 340 rupees year-on-year and 20 rupees quarter-on-quarter for our cement universe. Most analysts are of the view that there may not be much improvement in cement companies' performance before November, when demand is expected to pick up on seasonality. There may not be a significant decline in cement stocks next week, as investors remain bullish on the sector in the long term. Also, some negative impact of the anticipated poor Apr-Jun earnings has already been factored in by the Street.
