Top picks for the cement industry: India’s cement sector has faced headwinds in recent quarters, from rising interest rates to increased cost pressures, the construction materials sector, including ceramics, paints and adhesives, pipes, wood panels, cement and steel. It has also witnessed two major events in recent months. Firstly, Adani Group has announced the acquisition of Holcim India companies (Ambuja and ACC) at valuations close to USD 175 per tonne. Second, Ultratech has announced that it will spend Rs 128 billion to increase capacity by 22.6 million tons (at a capital cost of USD 75 per tonne). As a result, cement stocks broke more than 30 percent from highs and found themselves on the worst-performing stock list of the past week.
However, analysts at ICICI Securities suggest a marked improvement in demand in June 2022 so far, led by pre-monsoon push, upturn in infrastructure projects, lowering prices of steel, cement, etc., and better labor availability.
In a note, the brokerage said: “The month could see growth in the mid-teens, both MoM and YoY, implying a volume CAGR of 6 percent on a 3-year basis. With a pan-Indian occupancy of nearly 78 percent, the industry could see its second-highest volumes in June 22, after peaking in March 22, in the past seven months. Rs 35-40/bag from Rs 50-55/bag price increase announced in mid-April ’22 seems withdrawn in the Northern, Central and Eastern regions, while only Rs10-15/bag was reversed in the West in YTDQ1FY23 Prices in the South remain broadly flat QoQ in Q1FY23-TD, with dealers expecting price increases soon. believes that companies could pass cost escalations QoQ even into Q1FY23E and that average EBITDA/too is unlikely to fall on QoQ (although the YoY may continue to shrink).
Speaking of the short-term triggers in the cement sector, the note stated that “(a) Asset-based valuations are attractive around the long-term average of 1SD following a stock price correction of >40 percent over the past seven months; (b) any sharp reduction in fuel costs; (c) South price hike: As South enters a seasonally weak monsoon period extending to December 22, we believe the region would have no choice but to raise prices in the near term; (d) Monsoon price hike: As June 22E exit prices are 2 percent lower than the Q1FY23E average and demand is relatively strong, firms may raise prices in the monsoon to mitigate QoQ cost increases in Q2FY23E .”
Top picks for cement industry
ICICI Securities said in its note that Ultratech Cement (UTCEM) and Shree Cement (SRCM) remain their top picks.
Ultratech Cement (UTCEM)
The current market price of UltraTech cement is Rs 5,433 each (around 12:03 PM) with a gain of 0.08 percent. The stock has hit its 52-week high and 52-week low at Rs 8,269 each and Rs 5,410 each, respectively.
The company posted a 47.6 percent year-over-year jump in its consolidated net profit of Rs 2,620 crore for the quarter ended March 31, 2022. It also has a great dividend track report and has consistently announced dividends for the past 5 years.
ICICI Securities has given the stock a ‘BUY’ rating at a price target of Rs 8,500.
Shree cement (SRCM)
The current market price or CMP of the stock at the time of writing the report is Rs 19,233.30 each. The stock’s 52-week high and 52-week low levels are Rs 31,469 each and Rs 19,080 each, respectively. The company has a good track record of dividends and has consistently paid dividends for the past 5 years.
The company has good prospects as it makes effective use of shareholders’ money and improves its ROE. It announced a 16 percent drop in its standalone net profit to Rs 645 crore for the fourth quarter ended March 31. There is an increase in sales of 15 percent higher than Rs 3,552 crore in the previous quarter.
ICICI Securities has given the stock a ‘BUY’ rating at a price target of Rs
27,000.
The expert opinions and investment tips in this News18.com report are their own and not the website’s or its management. Users are advised to contact certified experts before making any investment decisions.
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