Cement shares in focus; UltraTech, Ambuja, ACC gain over 5%

The Covid-19 pandemic has dented prospects of the Indian cement sector
Shares of cement manufacturers rallied up to 8 per cent on the BSE on Wednesday after Prime Minister Narendra Modi announced a Rs 20 trillion stimulus package.

Ambuja Cements, UltraTech Cement, ACC, Orient Cement, JK Cement and Ramco Cements were up in the range of 5 per cent to 7 per cent in intra-day trade. Besides, Shree Cement, HeidelbergCement India, India Cements, JK Lakshmi Cement and Star Cement were up between 2 per cent and 4 per cent on the BSE.

“The PM said the Rs 20-trillion package, nearly 10 per cent of India’s gross domestic product (GDP), would be with the objective of putting money into people’s pockets to spur domestic consumption and demand. The package would cater to various sections, including the cottage industry, micro, small and medium enterprises (MSMEs), labourers, and middle class,” .

The Covid-19 pandemic has dented prospects of the Indian cement sector. Besides materially dragging the sector's improving utilization curve, the virus outbreak has also pushed ahead emerging pricing power of companies in the North/Central-India by at least two years.

“The North and Central are best placed as these regions have a more consolidated market structure, which makes it easier to achieve better discipline in production and prices. In FY21, we expect cement prices to improve 1-2 per cent year on year (YoY) in all regions, barring the East where we expect prices to decline 2-3 per cent YoY due to higher capacity addition,” analysts at Motilal Oswal Securities said in sector update.

In such an uncertain demand environment, the brokerage firm prefers companies that are moving down the cost curve, have strong balance sheet, and provide valuation comfort.

Analysts at Emkay Global Financial Service expect cement demand to be lower in FY21E due to lockdowns in many parts of the country, subdued demand from real estate sector and expectation of lower infrastructure spending by the government. Although cement companies have announced price increases recently, the sustainability of these hikes needs to be monitored when volume growth starts recovering, it said.

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