In the cement sector update dated 12 December 2008, we had upgraded our stance on the sector to positive that was in contrast to a negative consensus view.
Our view was based on certain factors like revival of volume growth in November 2008, better than street estimates of average realisations (despite benefit of 4% reduction in excise duty) and significant easing of the cost pressure that could potentially lead to upgradation in FY2010 earnings consensus estimates.
This, in turn, could result in re-rating of frontline stocks in cement sector, as valuations were at 30-60% discount to the replacement cost especially in case of those companies that have the advantage of early commissioning of their expanded capacities like Grasim Industries, UltraTech Cement and Shree Cement.
Our stand has been vindicated with the frontline cement stocks rallying by 25-30% in the past two months.
We had also maintained UltraTech Cement as our top pick in the sector and had upgraded it to Buy from Hold in our note dated 19 January 2009.
Since then the stock has appreciated by 25% to touch our price target of Rs475. Consequently, we are downgrading the stock to HOLD and advise partial booking of profits.