This comes after UltraTech Cement, the largest player in the industry, announced capex for addition of 22.6 million tonnes (MT) of capacity.
In the past one week, these stocks have slumped between 8 per cent and 13 per cent. JK Lakshmi Cement, Ramco Cements, UltraTech Cement and India Cements, meanwhile, were down 5 per cent to 8 per cent today, as compared to 0.73 per cent decline in the S&P BSE Sensex.
Ultratech's board, on June 2, 2022, approved Rs 12,900 crore ($76/ton) capex plan for setting up 22.6mt of new cement capacity (17 per cent of its capacity post completion of ongoing projects). The expansion will be a mix of brownfield and greenfield capacity across the regions to cater to future growth. The new capacity will be added through integrated units, grinding units and bulk terminals, and will be funded through a mix of debt and internal accruals
In another development, most of the cement companies have mentioned that their variable cost/ton is likely to increase by 10-15 per cent sequentially in April-June quarter (Q1FY23).
In current times of weak demand, high fuel costs and entry of a new player (Adani group), any significant capacity announcement may be viewed negatively by the market, according to analysts.
According to Emkay Global Financial Services, aggregate free cash flow generation of firms under its coverage declined 67 per cent year on year (YoY) to Rs 6,2 00 crore in financial year 2021-22 (FY22), due to working capital blockage of Rs 2,400 crore and a 57 per cent YoY increase in capex to Rs 15,200 crore.
"We believe that margin pressure is likely to continue in H1FY23E as variable cost/ton is expected to remain elevated due to an increase in input costs in the past few months and inability to pass on the cost increase. Cement stocks are likely to be range-bound given the lack of triggers in the near term. Any correction in input prices will be a key thing to watch out for," analysts at the brokerage firm said in a sector update.
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