The company expects that though demand growth may slow down marginally as against industry expectations, cost pressures may continue to impact the entire industry negatively for another six to nine months.
Current cement price increases are not sufficient to cover up for the increased expenses. Oversupply situation may continue to restrict upward movement in the cement prices in different regions while simultaneously increasing costs are expected to impact the profitability negatively.
However, ACC intends to maintain its market share and hence its expansion plan is well on track to increase its capacity to 30MT by CY10.
We believe that current scenario in the cement sector is quite similar to the last downturn cycle when stocks have traded at the lower end of the valuation band.
Concerns of oversupply, restricted increases in cement realizations, declining operating margins and de-growth in profitability will continue to hamper the performance of the companies for next one-and-a-half years.
We continue to maintain our cautious stance on the sector and REDUCE recommendation on the company with a price target of Rs614.