Cement sector outlook positive, Ultratech among top 3 picks by Motilal Oswal
2 min read 13 Jan 2023, 08:21 AM ISTMotial Oswal has picked Ultratech Cement as its top pick in the largecap space and Dalmia Bharat and JK Cement from the midcap space
PremiumCement manufacturing companies are expected to do well for next few years on the back of better demand prospects led by infrastructure and housing sectors, heightened industry consolidation, and regulatory changes in the allotment of limestone blocks.
Average price of a cement 50kg bag has gone up 3% on a quarter-on-quarter basis in the third quarter of FY23, Motilal Oswal said in a recent note. The brokerage estimates a 10% (YoY) growth in volumes in the December quarter and a three-year CAGR at 5.4%, aided by strong infrastructure and real estate demand as well as the low base effect of last year. In third quarter of FY22, sales volumes dipped 2.6% (YoY).
Motial Oswal has picked Ultratech Cement as its top pick in the largecap space and Dalmia Bharat and JK Cement from the midcap space.
For the full financial year 2023, Motilal Oswal expects “12% YoY volume growth for our coverage universe in 9MFY23 and estimate 4% YoY volume growth in 4Q, thus translating into a volume growth of 10% (YoY)."
The brokerage report further said that over the last few years, better pricing power was witnessed in the March-April period leading to improved realization during the April-June quarter (1Q of FY20-23).
The price of cement depends on factors such as monsoon, festive season, regional issues, construction activity (housing and roads/highways), etc.
“Our assumptions do not factor in aggressive price improvements in 4QFY23/FY24E. In fact, we have considered that benefits of any reduction in fuel costs will be passed on to the consumers and therefore, we assume a decline in FY24 cement price," said the brokerage report.
The key points that emerge for the cement industry are:
1. Strong volumes improve clinker utilization
2. Cement prices should remain strong in fourth quarter of FY23
3. Cost pressures appear to be subsiding
4. Profits likely to improve
Motilal Oswal has a buy rating on 6 stocks - Ultratech Cement, Dalmia Bharat, JK Cement, Birla Corporation, JK Lakshmi Cement and Grasim; Neutral rating on 4 - Shree Cement, Ambuja Cements, ACC and The Ramco Cements; and sell rating on India Cements.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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