Why are cement stocks falling? After falling 3 per cent to 10 per cent in the previous session, prices in cement stocks continued to fall. Shree Cement, Grasim Industries, Birla Corporation, Dalmia Bharat, UltraTech Cement and JK Cement touched their respective 52-week lows on the BSE in intra-day trade on Monday. The panic sale comes after investor concerns about UltraTech Cement’s capital expenditure plans following the acquisition of Holcim’s cement assets by the Adani Group.
UltraTech’s board on June 2, 2022 approved a Rs 12,900 crore ($76/tonne) capex plan to set up 22.6 million tonnes of new cement capacity (17% of its capacity after the completion of ongoing projects). The expansion will be a mix of brownfield and greenfield potential in the areas to meet future growth. The new capacity will be added through integrated units, grinding units and bulk terminals, and will be funded through a mix of loans and internal accruals.
In another development, most cement companies have mentioned that their variable cost/tonne is likely to increase by 10-15 per cent sequentially in the April-June quarter (Q1FY23).
According to Emkay Global Financial Services, the total free cash flow generation of firms under its coverage declined by 67 per cent year-on-year (YoY) to Rs 6,200 crore in the financial year 2021-22 (FY22), due to blockage of working capital. reason. 2,400 crore and capital expenditure increased by 57 per cent year-on-year to Rs 15,200 crore.
“We believe that margin pressure is likely to continue in H1FY23E as variable cost/tonne is expected to remain elevated due to increase in input costs and inability to pass on the cost escalation over the past few months. Cement stocks are likely to remain in a narrow range in the near term given the lack of triggers. Analysts at the brokerage firm said in a sector update, any correction in input prices would be crucial to see.
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