Friends,
The cement scrips were punished unduly harshly in recent past. These stocks in fact deserve a better discounting on account of some matters unique to this sector and I enumerate them below:
A)Cement is not possible to be imported in bulk and distributed efficiently , if importe.
B) Cement can not be stored for long and hence by virtue of its nature the interest cost on inventory is low.
C) The more units come up the less is the average lead distance for each of them in terms of reaching the product to consumer. The intensive marketing leads to many other benefits for the company.The buld transportation is possible now through highways too now.
E) Its raw material source is captive and for power etc it has many routes open to it.Cement quality does not go down if it is blended with slag(by-product of steel), ash and other pozzolanic material which are available in plenty.
F) It has hardly any replacement and is the key material in creating infrastructure and housing.
G)The production of cement is now based on the best technologies available around the world.
I) Per capita consumption of cement in India is still low at just 140 kg against world average of 260 kg and the Chinese consumption of 630 kg per capita.
J) The upcoming cement capacity of 86 M/T over next two years may not be as much as planned due to high interest costs which will make a few of the projects shelved for time being. Even otherwise the capital employed by the present manufacturers will be having higher return base as new capital will come in only if it is possible to have returns of more than the capital borrowed on interest.
K) The industry is no more fragmented and is now represented by best of the groups in the industry.
L) The growth in this sector is always more than the GDP growth and with higher levels of income it will have very big growth as the spending on housing and infrastructure will increase.
Now I hope you will have courage to buy the scrip in this sector.At the time of writing this post the ACC has jumped up to 515/- (up by Rs 17 on last closing) in a down market where the Nifty is trading at 3944 down 86 pts since yesterday.
HariOm,
KrsnaKhandelwal
