The absence of a sector-specific trigger and subdued demand are
likely to keep cement stocks in the negative in the week ahead. We expect that the worst
is over for cement companies, demand woes remain and chances of a revival seem bleak
even in the medium term.
As long as the monsoon lasts, pick up in demand as well as prices
is unlikely, adding that in such a scenario companies' margins will be hurt, and hence,
less preferred by investors. Also, the stock market is seen falling further next week, and an
opposite trend in cement stocks is unlikely.
We expect that poor pick up in volumes even during peak seasons of
the past several months has been a major concern and trickle down demand following
the government's various reforms push since September has been slow. We expect a
revival in demand for cement post monsoons, when construction and infrastructure
activities pick up led by the government's accelerated pre-election spending, but now even that
seem to have taken a backseat.
We are turning cautious on the sector due to the continued
weakness in demand and prices (cement industry demand is nearly flat year-on-year so far
in FY14 (Apr-Mar) while the all India average prices are down around 3% YoY for the
fourth straight month). The recent downward revision to gross domestic product estimates
for 2013-14 to 5.5% from the earlier 5.7%, there is limited visibility of a sharp
recovery post monsoons.
