Why are Cement Stocks falling?
Created on 08 Jul 2022
Wraps up in 4 Min
Read by 1.8k people
Updated on 01 Sep 2022
Kyun ki "Bhaiyaaa, ye deewar toot ti [..] nahi" par gir jarur sakti hai. Sorry pj :|
Cement is the binder that holds together all the other components of concrete, resulting in the strongest foundation for the construction sector. But it seems like the industry stocks are themselves getting down.
Thinking about what this means?
No worries, we have every answer you might be searching for.
The continuous decline in stocks is making the cement industry shiver, and given below are the reasons for the same.
Understanding the Cement Sector
The cement industry is always under the scanner for its inefficient supply chain, lack of R&D, sub-par technology, and failure to explore new technologies. The last one could streamline the supply chain and make the operations more cost-effective and efficient.
Consequently, there is a huge dip in the cement stocks, making the industry face massive price declines and losses.
Jesse Lauriston Livermore said, “The stock market is never obvious. It is designed to fool most of the people, most of the time.” That is what the present cement stocks are exhibiting.
The Indian government is constantly striving to maintain economic stability and growth. Therefore, it has been imposing a series of new rules and regulations that have increased the compliance risks for cement companies.
All these things have taken a toll on the equity prices of the Indian cement companies, making them decrease drastically. This blog includes some reasons leading to a heavy fall in the prices of cement stocks. So, let’s take a look at some reasons as to why cement stocks are falling.
Reasons why cement stocks are falling
Decline in Demand
Cement shares have been falling in recent months due to the declining demand for cement.
It is mainly due to the slowdown in the construction sector. The construction sector is a major user of cement. Additionally, the oversupply of cement in the market has also put pressure on prices, leading to a decline in cement stocks.
Given below are some reasons explaining the decline in cement stocks.
Not enough spending on infrastructure development
One can attribute the recent sell-off in cement shares to the slowdown in infrastructure development. There are several reasons for the slowdown in infrastructure development.
One is the lack of government spending. With the current fiscal situation and the budget in action, the government is reluctant to increase spending on infrastructure. It has led to a slowdown in construction projects.
Another reason is the lack of private investment. Private companies are also hesitant to invest in infrastructure projects due to the high risks and costs involved in the process. It has further contributed to the infrastructural slowdown, leading to a cut in the cement stocks.
This trend will likely continue in the short term until there is an increase in infrastructure spending.
High fuel costs
Cement stocks are falling due to high fuel costs. The costs have risen sharply in recent months. It has put pressure on margins and has led to a decline in stock prices. In addition, the strong US dollar has also made cement exports more expensive, further eroding profits.
Result of the new Earning Per Share (EPS)
The stocks of the cement industry have been on the decline in recent months, and one of the key reasons cited has been the new Earning Per Share (EPS) method. This method uses a different set of accounting standards, resulting in a lower reported profit for many companies.
Furthermore, the decline has been correlated with EPS ahead of Ambuja Cement’s report for a weak Q3. This fact, in turn, has led to a sell-off in the cement shares.
Launch of the CAPEX plan
One major reason for a weak stock rate is the announcement to launch a CAPEX plan with a valuation of 129 billion by one of the largest cement giants: UltraTech Cement. Also, the reducing cash flow has resulted in a fall owing to the working capital blockage.
P/E ratio evaluation
Across the same lines, the P/E ratio of Ambuja Cement is relatively high, which means there is a possible overvaluation of the stock. This aspect, coupled with the dwindling demand for cement, has led to a decline in Ambuja Cement’s sales and profit margins.
Lastly, the company has been facing issues with its raw material supply, which has increased production costs. These are some reasons why Ambuja cement share fell between 3% and 10%!
Because Ambuja Cement is one of the leading cement companies, its performance prediction is an important statistic for evaluating cement stocks.
Ultratech cement share also witnessed a fall in its price. Ultratech is focusing on reducing expenses to cover the loss, which is expected to considerably increase the stock prices over time.
In the construction industry, cement is the second most widely consumed commodity after water!
The Bottom Line
The cement sector is one of the largest contributors to GDP growth and ever-increasing development. But, presently, the cement industry is going through a tough time, as the prices are falling. If you are looking to invest in the cement industry, this might not be a good time, as no one knows when it will boom again.
Nevertheless, here is your smart tool, Ticker by Finology, with a deep-rooted understanding of how the market is reacting and functioning! The platform helps you analyse and research different stocks, gain knowledge for trading purposes, and pave your way to the trading sector.
Till we meet again!