Mumbai: Shares in cement firms ACC Ltd and Ambuja Cements Ltd, units of the Holcim Group, slumped on Friday owing to investor disappointment with quarterly earnings announcements on Thursday.
Market conditions have been muted for cement firms since last year, with slower sales of new buildings. The economic slowdown has clouded demand outlook and that coupled with rich valuations has led to the drop in prices, analysts say.
The nation’s largest cement maker ACC reported a 46% drop in consolidated net profit as revenue rose 2% on higher input costs and a change in the method of providing depreciation on fixed assets pertaining to captive power plants.
“We think that margins have peaked out and given the oversupply it will likely be a struggle to even maintain them,” Macquarie analysts Rakesh Arora and Sumangal Nevatia said in a note on ACC.
Ambuja Cements reported a 5.33% rise in December quarter profit to Rs.1,293.21 crore from a year ago.
“While we remain structurally positive on the sector, we see near-term risk to (Ambuja Cements) stock performance given valuation and earnings risk from cost inflation,” Morgan Stanley analyst Ashish Jain said in a note. He has an “equal- weight” rating on the stock.
Switzerland-based Holcim Group holds around 50% stake in both ACC and Ambuja Cements.
Macquarie said there have been questions about Holcim raising royalties sustainably in the future from the current 1%, which could effectively take away potential profit growth for both the cement companies. It currently has a underperform rating on ACC and Ambuja Cements and believes these stocks could continue to de-rate.
ACC fell 3.04% to Rs.1,304.45, while Ambuja Cements shed 5.10% and closed at Rs.189.85. The Sensex declined 0.49% to 19,484.77 points.
For the year-to-date, ACC and Ambuja have shed 8.74% and 5.52%, respectively, even as the broader 30-share index, Sensex, has posted a 0.3% gain.