Top Picks: Emkay suggests 5 cement stocks to buy

Market


The brokerage firm Emkay Global Financial Services Limited is bullish on the cement sector and has picked up 5 cement stocks with a buy rating. The brokerage continues to favor UltraTech and Shree Cement among large caps and has also given a buy rating to ACC, Birla Corp and Sagar Cements.

The research analyst of Emkay, Dharmesh Shah said “Post gradual price hikes for the past three months, average Pan-India cement price is likely to have declined by 1% MoM (~Rs4/bag) in Dec-22. Prices declined by ~2% MoM in East and South India, while remaining broadly flat in other regions. In Q3FY23, all-India average cement prices increased by 2-2.5% YoY and QoQ, with a 5-7% price improvement in the southern and eastern regions. Prices in the North and West are likely to have stayed flat QoQ, while possibly declining by ~2% QoQ in the central region.”

He further added that “Industry volumes likely flat-to-marginally positive YoY and MoM, in Dec-22. Volumes in Oct-22 were impacted by the festival season. However, they picked up pace in Nov-22 and are expected to have increased by 7-8% YoY in Q3FY23, led by a favorable base and the strong infra push by the government. We expect demand momentum to improve, with a busy construction season and as pre-election spending kicks in. Volume growth will be 10-11% YoY in 9MFY23, in our view.”

“Cement companies attempting price hikes of Rs10-20/bag across regions, in Jan23. Absorption of the price hikes will unravel over the next few days. Besides, we expect demand to further pick up (from mid-Jan ’23) after Kharmas (considered an inauspicious period in India), which should bode well for pricing. We expect industry-profitability to bottom out in Q2 and increase by ~Rs200/ton QoQ (even higher for eastern players) in Q3FY23, with higher cement prices, along with peaking-out of the operating cost in Q2FY23. Note, international petcoke prices corrected by >35% from their peak (in Apr-22), at US$172/ton,” claimed the analyst.

Top cement stocks to buy

Company Name Rating Target Price in Rs.
UltraTech Buy 7,100
Shree Buy 23,300
Ambuja Hold 480
Dalmia Hold 1,600
ACC Buy 2,625
Ramco Hold 670
JK Cement Hold 2,800
Birla Corp Buy 1,185
Sagar Cements Buy 220
Star Cement Hold 105
Source: Emkay Research    

The brokerage said “Our medium-term upcycle thesis remains largely intact, albeit with a more gradual reset in profitability (RoIC), underpinned by improving demand-supply dynamics, better price discipline, cost optimization, and de-risking efforts. Key downside risks: 1) Lowerthan-expected demand growth; and 2) any negative outcome from the CCI investigations.”

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.


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