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| India Infoline Research Team / 16:19 , Sep 08, 2010 |
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Cement prices raised in South; hike appears unsustainable
- Cement stocks have rallied 5-18% on reports that key South-based players (India Cements, Madras Cements, Dalmia and Ultratech) have raised prices by Rs25-50/bag (a hike of ~10-25%) with, unsurprisingly, the maximum increase seen across Andhra Pradesh, which had earlier bore the brunt of the correction
- The price hike comes as a surprise as the region is in the midst of a volume degrowth combined with looming overcapacity (due to steady commissioning of new plants)
- Moreover, our channel checks suggest the hike is unlikely to be sustainable as demand remains sluggish in most of the areas. Also, North-based companies are unlikely to follow suit, an indication the hike may just be an aberration. Maintain our negative stance on the sector as muted volume growth and rising supply across key markets would dampen stock performance
- Retain SELL on ACC as valuation appears expensive (CY11 PE of 13.6x, EV/ton of US$110)
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