Cement stocks post solid gains on value buying

Most cement stocks rallied last week and outperformed Nifty 50 as investors saw value buying opportunities even as large brokerages improved their outlook for the sector.

Stock prices of cement companies including ACC, Ambuja Cements, Grasim Industries, UltraTech Cement, JK Cement, JK Lakshmi Cement, Shree Cements, India Cements, Heidelberg Cement India and Ramco Cements gained in the range of 2-11.5 per cent on the BSE. On Friday, while Sensex closed up by 1.12 per cent, the above mentioned stocks were up 0.9-6.3 per cent.

IIFL foresees better times for the industry on a sustainable basis reflected by improved earnings visibility following low pace of capacity addition till FY19 and more consolidation. The brokerage expects robust growth in demand year-on-year basis due to improved infrastructure spending by the Centre, pre-election spending in States such as Uttar Pradesh, Tamil Nadu and Punjab going into elections in the coming months, and a low base.

“We estimate 29 per cent Ebitda CAGR for the sector through FY16-18,” it said in a note released on Friday.

Higher spending on roads and measures to prop up demand in beleaguered rural economy in the Union Budget followed by passage of Real Estate Bill will also help in perking up demand in the long term.

Ambit and ICICI Securities also agreed with IIFL’s outlook on improved times for the Indian cement industry.

ICICI Securities expects volume growth of over 10 per cent in March quarter led by East and North regions coupled with demand revival in South. Analysts said northern and central region has witnessed sharp price increases recently.

All India price hike has been 4 per cent month-on-month, they added. On the other hand, costs continue to be low. This indicates better performance by the industry in March 2016 quarter than earlier expected.

For Religare Institutional Research, UltraTech Cement remains top pick in the sector. Besides UltraTech, Ambit also recommends buying ACC and Ambuja Cements due to inexpensive valuation. ICICI Securities has buy rating on most cement stocks.