Sensex Trades Strong; ACC Cement Surges 7%

Mon, 24 Apr 01:30 pm

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After opening the day on a positive note, share markets in India have continued the momentum and are trading comfortably above the dotted line. All sectoral indices are trading on a positive note. Stocks in the power sector and stocks in the PSU sector are leading the gains.

The BSE Sensex is trading up by 222 points (up 0.8%), and the NSE Nifty is trading up by 75 points (up 0.8%). Meanwhile, the BSE Mid Cap index is trading up by 0.6%, while the BSE Small Cap index is trading up by 0.9%. The rupee is trading at 64.47 to the US$.

In news from stocks in the banking sector. HDFC Bank share price continued its upward march as the stock hit a new all-time high in today's trade.

Shares rose as much as much as 2.4% to a record high of Rs. 1,538. HDFC Bank has gained for a fifth straight session on account of strong results in the March quarter.

The country's second-biggest lender by assets on Friday reported higher-than-expected profit of Rs. 39.9 billion (US$ 618.5 million) for the March quarter, up from Rs 33.7 billion a year ago.

Provisions soared 76% to Rs 12.6 billion from Rs 7.2 billion a quarter ago, though net bad loans remained meagre at 0.33%, up from 0.28% a year ago.

The bank posted an 18% rise in March quarter earnings boosted by fee income even as it cut staff for the second straight quarter and slowed branch expansion as it exploits digital technology to reach out to customers.

Its staff strength has fallen by 6,096, or 7%, to 84,325 in the quarter ended March 2017 from 90,421 in December 2016. This reduction is the highest in a quarter and at least 33% more than the 4,581 people the bank lost in the quarter ended December 2016.

HDFC Bank is trying to improve productivity by cutting costs and optimizing its processes through automation. These benefits will come to the bank in the next two quarters but after that the base effect will kick in. Meaning that the benefits will remain only for the short term. Ultimately the bank will have to invest to grow for which it will have to incur costs.

HDFC Bank: The Solid Outperformer

We first recommended HDFC Bank under ValuePro (subscription required) in Jan-2012.

Since then the stock has been a consistent outperformer. Since our recommendation, the stock has given an absolute return of 250% compared to BSE Sensex returns of 89%.

Despite a difficult environment, the bank came out with good set of numbers. Now, at ValuePro, our process is simple. We look for quality companies with a long-time horizon available at a margin of safety. We believe, if the process is right then the proceeds take care of themselves.

At the time of writing, HDFC Bank share price was trading up by 2.4%.

Moving on to news from stocks in the cement sector. ACC Cement share price is among the top gainers on the indices today. The stock has rallied by as much as 7% in today's trade to hit a 6 month high even as the cement major reported a 9% YoY drop in consolidated net profit to Rs 2.1 billion for the March quarter.

The spurt in ACC's share price was on account of increased sales volumes. During the quarter, ACC sold 6.6 million tonnes of cement, a rise of 3.8% against 6.36 million tonnes last year in the same quarter.

Cement volumes during the first quarter showed growth of 4% (year-on-year) as the impact of notebandi declined and benefits were delivered from ongoing customer excellence initiatives and higher sales from the expanded capacity at the company's Jamul and Sindri plants.

The company said its profit before tax (PBT) fell to Rs 2.6 billion for the March quarter, compared with Rs 3.3 billion in the year-ago quarter.

Net sales for the quarter rose to Rs 31.1 billion for the quarter, up 7.8% YoY over Rs 28.8 billion reported in the year-ago quarter.

After a dismal January and February, volumes for most cement companies picked up in March. This was because some increase was seen in government spending on infrastructure, which happens almost every year in March. Also, on a year-on-year basis, volume growth would look impressive because of the base effect, as March 2016 was dismal.

As far as ACC is concerned, it may see some volume growth in the coming quarters as well, largely aided by capacity expansion.

The company commissioned capacity in the eastern region at the Jamul plant in Chhattisgarh. Also, it launched two new products during the March quarter.

At the time of writing, ACC Cement share price was trading up by 6.8%.

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