Cement manufacturing companies are expected to do well over the next few years on the back of improved demand prospects led by infrastructure and housing sectors, increased industry consolidation, and regulatory changes in allocation of limestone blocks.
Motilal Oswal in a recent note said the average price of a 50 kg bag of cement increased by 3% on a quarter-on-quarter basis in Q3 of FY23. The brokerage estimates 10% (YoY) growth in volumes in the December quarter and a three-year CAGR at 5.4%, supported by strong infrastructure and real estate Low base effect from last year along with demand. In Q3 FY22, the sales volume declined by 2.6% (YoY).
Motil Oswal has chosen UltraTech Cement Top pick in the largecap space Dalmia India and JK Cement from the midcap sector.
For full FY2023, Motilal Oswal expects “12% YoY volume growth for our coverage universe in 9MFY23 and 4% YoY volume growth in 4Q, thus translating into volume growth of 10% (YoY)”. It happens.”
The brokerage report further stated that over the years, the March-April period witnessed better pricing power, leading to better realizations during the April-June quarter (Q1 of FY20-23).
Cement price depends on factors like monsoon, festive season, regional issues, construction activity (housing and road/highway) etc.
“Our assumption does not factor in aggressive price corrections in 4QFY23/FY24E. In fact, we have assumed that the benefit of any reduction in fuel cost will be passed on to consumers and hence, we anticipate a decline in FY24 cement price,” the brokerage report said.
The key points emerging for the cement industry are:
1. Strong volume improves clinker utilization
2. Cement prices to remain firm in Q4 FY23
3. Cost pressures seem to be easing
4. Profits likely to improve
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Motilal Oswal has a buy rating on 6 stocks – UltraTech Cement, Dalmia Bharat, JK Cement, Birla Corporation, JK Lakshmi Cement and Grasim; neutral rating at 4 – Shree Cement, Ambuja Cements, ACC and Ramco Cements; and Sell rating on India Cements.
Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint. We advise investors to do due diligence with certified experts before making any investment decision.
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