UltraTech expects demand for cement to grow on the back of the government's thrust on infrastructure and the expanding rural economy.
Shares of cement manufacturers were in demand with most of the sector stocks trading higher in the range of 2 per cent to 6 per cent on the expectation of improved demand. Analysts expect the cement industry to witness positive growth in the second half (October-March) of the current fiscal (H2FY21) led by strong demand from the sustainable rural trade segment.
ACC rallied 6 per cent to hit a fresh 52-week high of Rs 1,670 on the BSE in the intra-day trade. The stock surpassed its previous high of Rs 1,637, hit on October 22, 2020.
Shree Cement, too, surged 6 per cent, while Ambuja Cements, UltraTech Cement, Ramco Cements, Mangalam Cement, and Shree Digvijay Cement were up in the range of 2 per cent to 4 per cent on the BSE. In comparison, the S&P BSE Sensex was up 0.63 per cent at 40,397 points at 01:14 pm.
"The cement demand is strong led by rural retail which is led by a good monsoon. More than 50 per cent of rural districts have shown growth over their past few performances. This uptick in demand is not pent up demand as ascribed initially. Urban demand is also coming back slowly. New capacity addition will slow down as very few limestone mines are available. Key drivers of demand are rural housing and infra," said Dolat Capital in a recent report.
For the July-September quarter, the sector giants UltraTech Cement and ACC reported strong operational performance. UltratTech’s EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin improved to 27.7 per cent from 21.8 per cent. EBITDA/tonne improved 30 per cent year-on-year due to benefit of cost rationalisation initiatives taken by the company in the previous quarter. Analysts had expected EBITDA/tonne to improve to 23.5 per cent YoY during the quarter.
UltraTech expects demand for cement to grow on the back of the government's thrust on infrastructure and the expanding rural economy. The recent policy measures announced by the Reserve Bank of India to support the real estate sector will also aid demand, it said.
Analysts at Emkay Global Financial Services remain constructive on the sector as they expect clinker utilisation to improve gradually. Though there has been cost inflation in the first half i.e. April-September period (H1FY21), the brokerage firm believes that price hikes and volume improvement will help companies improve profits.