Why cement stocks bucked positive broader market?

The domestic share market witnessed bullish trade on Friday, led by gains in index heavyweights such as Reliance Industries, Infosys, Wipro, HCL Technologies and Tata Consultancy Services (TCS), as well as firm global cues. Despite positive broader market cues, cement stocks were reeling under selling pressure amid worries about rising competition and pricing pressures after sector heavyweight UltraTech Cement committed a capital expenditure of ₹12,886 crore to increase its capacity. The Aditya Birla Group company made this announcement two week after Adani group announced to buy Swiss building materials firm Holcim’s Indian operations.

UltraTech Cement, the country’s largest cement company, was the biggest loser in the cement space, with stock price falling as much as 5% in intraday trade on Friday. Among others, ACC, Ambuja Cement, India Cement, Ramco Cements, Shree Cement, JK Lakshmi Cement, Dalmia Bharat and JK Cement dropped up to 4%. In contrast, the BSE Sensex was trading 414 points higher at 56,231 levels.

The board of UltraTech Cement on Thursday approved capex of ₹12,886 crore towards increasing capacity by 22.6 metric tonnes per annum (MTPA) with a mix of brown field and green field expansion by fiscal 2025. The current capacity expansion programme of the Indian cement major is already on track and is estimated to be completed by the end of the current financial year. This new capacity expansion plan would be achieved by setting up integrated and grinding units as well as bulk terminals.

UltraTech, which is the third largest cement manufacturer outside China, has an existing consolidated capacity of 119.95 MTPA of grey cement. The company has utilised 77% of this existing capacity, according to the details shared by the company. It currently operates 22 integrated manufacturing units, 27 grinding units, one clinkerisation unit, and eight bulk packaging terminals.

Last month, the Adani family entered into a definitive agreement for the acquisition of Switzerland-based Holcim Ltd’s entire stake in two cement companies – Ambuja Cements Ltd and ACC Ltd. The value for the Holcim stake and open offer consideration for Ambuja Cements and ACC was around $10.5 billion. Holcim, through its subsidiaries, holds 63.19% in Ambuja Cements and 54.53% in ACC - of which 50.05% is held through Ambuja Cements.

Ambuja Cements and ACC currently have a combined installed production capacity of around 70 million tonnes per annum (MTPA). The two companies have 23 cement plants, 14 grinding stations, 80 ready-mix concrete plants and over 50,000 channel partners across India.