BNP Paribas maintains 'deteriorating' outlook on Indian cement sector

BNP Paribas has maintained its ‘deteriorating’ outlook on the Indian cement sector given its weak macroeconomic outlook, high interest rates, continuing oversupply situation, cost inflation and ongoing regulatory overhang.

The Economic Times of India reported that cement stocks have been witnessing pressures since the Competition Commission of India (CCI) imposed a penalty of US$1.1bn on 11 cement companies last week. The fines is 50 per cent of the companies’ net profit for FY10 and FY11 and they have been given 90 days to pay the deposit.

"If the Competition Appellate Tribunal and Supreme Court agree with the CCI's conclusion, this is likely to negatively impact the pricing power of the industry," according to BNP Paribas. "This is likely to have a longer-term impact on the profitability of the sector (not currently included in our estimates) and result in a derating of sector valuation multiples," the research house said.

“We believe that the fine is unlikely to have an immediate EPS impact for companies as they will appeal against the ruling and obtain a stay order," the report added.