Brokerage firm Macquarie has advised investors to use positive news around election results to book profit in ACC, Ambuja Cement and UltraTech Cement, citing expensive valuations.
Macquarie has an underweight rating on these cement players. It says that cement prices began to lose momentum from April and demand recovery is unlikely in near future.
Cement stocks have run up sharply in the past three months, riding the rally in infra stocks and the price hikes announced during the March quarter. ACC and Ambuja shares were up nearly 25 per cent in last three months while UltraTech Cement rose 16 per cent compared to an 11 per cent gain in Nifty.
Increasing input and energy costs have put pressure on margins at cement companies while demand remains a concern amid a sharp slowdown in the Indian economy.
Besides in the most recent quarter, barring UltraTech, the other two cement companies could not impress the Street. Even though UltraTech managed to beat estimates in the March quarter, its profit was predominantly driven by cost controls rather than strong revenue expansion.
UltraTech, which is largest cement producer in India, reported a 15 per cent rise in net profit to Rs 838 crore while sales rose 8.2 per cent to Rs 5,832 crore.
ACC reported 8.7 per cent year-on-year (y-o-y) decline in its net profit at Rs 400 crore for the quarter ended March, 2014, whereas its revenue grew a mere 2 per cent year-on-year to Rs 2,967 crore in the same quarter. It attributed spiralling cost and sluggish demand for the decline in profit.
Ambuja Cement reported a 6.6 per cent rise in net profit in the March quarter to Rs 520 crore while its sales rose 2.7 per cent to Rs.2,640 crore.
At 10.50 a.m. shares in Ambuja Cements traded 0.36 per cent down at Rs 193.85, whereas shares in ACC and UltraTech traded with loss of 0.2 per cent at Rs1,269 and Rs1,966 respectively compared to 0.50 per cent gain in Nifty.