Recovery After Note Ban: Southern Cement Firms Lead The Race

The cash crunch has hit the cement sector hard, with volume growth slowing to 0.5 percent in November, according to a report by Ambit Capital. The brokerage expects overall industry volumes to decline by 1-5 percent in December. Not surprisingly, since the demonetisation of high-value currency notes, stocks of most cement companies across India fell in the range of 11-33 percent last year.

However, all cement companies, except ACC, have staged a recovery in 2017. The comeback has been stronger for players with south India presence. India Cement, Dalmia Bharat and Ramco Cement have clocked gains in the range of 12-25 percent since the start of the new year as compared to 1-4 percent gains seen by their peers.

What explains the trend? Ambit Capital says the real estate sector in southern India is largely a white economy, which makes these companies less vulnerable to the demonetisation shock. The south-based cement companies may either sustain or deliver better returns as they are expected to report better December-quarter results compared to peers.