India: cement prices to hold up thanks to merger deals

India's stock researcher Livemint is forecasting that mergers like that between JP Associates Ltd and UltraTech Cement Ltd and also Birla Corp Ltd and Reliance Infrastructure Ltd will rationalise ownership to support cement prices.

Meanwhile, with government projects gaining traction in areas like state metros, highways, low-cost housing and dedicated freight corridors, besides irrigation and water supply, demand and consequently cement dispatches are likely to improve from the fourth quarter of FY16 and continue in quarters to come, according to Livemint.

Good monsoons are also seen as a positive force as they can release the pent-up demand in rural areas following a drought in the last two years. A Religare Capital Markets Ltd report forecasts 7-8 per cent YoY growth between FY16 and FY18.

In addition, the slowdown in capacity build-up in the last few years is also expected to improve capacity utilisation. Not to forget that the international price of coal, which accounts for a quarter of the total cost of producing cement, is down. This will percolate down to aid operating profit per tonne.

Shares of cement firms have been volatile, thanks to erratic cement price movements and consumption patterns in the last six months. As the uncertainty clears up, there will be more investor interest in cement stocks, claims Livemint.