Why Are Cement Stocks Falling? After falling between 3 per cent to 10 per cent in the previous session, cement stocks continued the downfall in their prices. Shree Cement, Grasim Industries, Birla Corporation, Dalmia Bharat, Ultratech Cement, and JK Cement hit their respective 52-week lows on the BSE in Monday’s intra-day trade. This panic selling comes on the heels of investor concerns around UltraTech Cement’s capital expenditure plans post the Adani Group’s acquisition of Holcim’s cement assets.
Ultratech’s board, on June 2, 2022, approved Rs 12,900 crore ($76/ton) capex plan for setting up 22.6mt of new cement capacity (17 per cent of its capacity post completion of ongoing projects). The expansion will be a mix of brownfield and greenfield capacity across the regions to cater to future growth. The new capacity will be added through integrated units, grinding units and bulk terminals, and will be funded through a mix of debt and internal accruals
In another development, most of the cement companies have mentioned that their variable cost/ton is likely to increase by 10-15 per cent sequentially in April-June quarter (Q1FY23).
According to Emkay Global Financial Services, aggregate free cash flow generation of firms under its coverage declined 67 per cent year on year (YoY) to Rs 6,2 00 crore in financial year 2021-22 (FY22), due to working capital blockage of Rs 2,400 crore and a 57 per cent YoY increase in capex to Rs 15,200 crore.
“We believe that margin pressure is likely to continue in H1FY23E as variable cost/ton is expected to remain elevated due to an increase in input costs in the past few months and inability to pass on the cost increase. Cement stocks are likely to be range-bound given the lack of triggers in the near term. Any correction in input prices will be a key thing to watch out for,” analysts at the brokerage firm said in a sector update.
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