One sub-sector that has been in a freefall mode for the last few weeks is the cement sector. Cement stocks have fallen over 15% in the last one-month period and have touched their new 52-week lows in today’s session.
By 12:50 PM IST today, some cement stocks that touched a 52-week low were – J.K. Cement Ltd (NS: ) shares tumbling to INR 2,045, UltraTech Cement (NS: ) shares falling to INR 5,410, Ramco Cements Ltd (NS: ) shares falling to INR 603.9, Shree Cements Ltd. (NS: ) plunging to a low of INR 19,502 and Dalmia Bharat Ltd B (NS: ) shares taking a hit to INR 1,228.1.
So if you are wondering why cement shares are falling, the primary trigger for a panic selling in cement shares is the intense competition brewing up in the industry which could further lead to a potential price war. For instance, On 2 June 2022, UltraTech Cement announced that it is going for an aggressive capital expenditure plan and approved INR 12,900 crores to set up a 22.6 mt cement capacity plant.
The news broke out after Swiss-based Holcim (SIX: ) signed an agreement with Adani (NS: ) Group for the latter to own stakes in Ambuja Cements Ltd. (NS: ) and ACC (NS: ), which would make Adani Group the second-largest cement maker in the country with a manufacturing capacity of 68 million tonnes a year. Currently, UltraTech cement has the highest capacity of 115 million tonnes per year.
While investors are worried about the impending price war, it would be difficult for almost every player to make a sizable cut to cement prices. The margin pressures have already picked up since the beginning of the year as variable cost per tonne has risen on the back of higher input costs.
The entire sector is struggling to strike a balance between demand and rising input costs and the result of a potential price war around these times is what the market is discounting.
A comparative price analysis of cement stocks
Taking a look at some of the five cement stocks that have tumbled to a new 52-week low today, the picture does not seem to comfort bulls. However, the largest cement maker, UltraTech Cement shares have been outperforming other peers for the last one year.
Image Description: Stock performance of 5 cement stocks for the last one year
Image Source: Investing.com
The share price of UltraTech Cement fell around 17% in the last 12 months, while the second-best performer (out of the above 5) was the share price of JK Cement, which lost almost half of its value in the same time period.
The share price of Shree Cement and Dalmia Bharat have delivered a negative return of almost 29% and 30%, respectively. Shares of Ramco Cements were the worst performers from our list, falling around 40% in the last one year.