Book profit in cement stocks: Sushil Finance

Sushil Finance has come out with its report on cement space. The research firm recommends investors to book profit in cement stocks.

We initiated coverage on Indian Cement Sector during October, 2011; identified few stocks including JK Lakshmi Cement Ltd., JK Cement Ltd., Madras Cement Ltd., Mangalam Cement Ltd. and OCL India Ltd. which were then trading at throwaway valuations. The cement manufacturers were under severe pressure with significantly low demand negatively impacting the top-line and substantially high raw material and fuel costs that continued to reflect in their quarterly performances. The profits were narrowing and losses were expanding across the sector. Nevertheless, the calendar year 2012 brought in an upturn in demand and a declining trend in the input costs while rewarding the cement producers. The financial performances of these companies continued to improve every quarter.  
Recently, the delayed monsoon resulted into an extension of construction activities that proved beneficial for the cement manufacturers. The robust demand also ensured firm prices of cement which in a normal monsoon would have been dropped otherwise during this period. During June, 2011 the cement demand stood at 1.6% on an annual basis much lower as compared to this year. During April 2012 and May, 2012, the demand for cement stood at nearly 6.3% and 13.0%, respectively. The extension of monsoon resulted into a healthy demand for cement in June, 2012 as well.
 
During Q1 FY13, the companies in our cement universe not only registered a robust top-line growth but most of them also recorded a substantial jump in profit margins. Resultantly, the bottom-line witnessed a significant upturn during the quarter. The weak monsoon also triggered the share prices which experienced a further uptick in the recent times. The following charts compare the current valuations of some Indian cement manufacturers with the valuations they were trading a year ago. These charts reflect that companies in our coverage are still trading much below their replacement costs, particularly OCL India and Mangalam Cement. Public holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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