scorecardresearchFour cement stocks including UltraTech rose up to 10% in a week; here's what's driving the rally

Four cement stocks including UltraTech rose up to 10% in a week; here's what's driving the rally

Updated: 21 Feb 2023, 05:42 PM IST
TL;DR.
In the last one week, shares of UltraTech Cement, Shree Cement, Ambuja Cements and Sagar Cements rallied in the range of 2–10%. In a recent note, brokerage firm Jefferies said cement prices were hiked in north India by 10–20 per bag and 5–10 per bag in the east and central regions and a few markets in the south.
Brokerages are bullish on the sector going forward, given that the government is focused on developing the country’s infrastructure as well as low-cost and affordable housing.

Brokerages are bullish on the sector going forward, given that the government is focused on developing the country’s infrastructure as well as low-cost and affordable housing.

Despite their weak performance in the December quarter, cement companies' stocks have been soaring lately, backed by the hike in cement prices in the range of 5–20 per bag across the country. The cement industry has been experiencing high cost pressure due to a rise in pet coke and coal prices in both domestic and international markets since the start of the Russia-Ukraine conflict.

The prices of both domestic and international pet coke and coal have moderated slightly but they were still higher compared to the long-term average.

In a recent note, brokerage firm Jefferies India said cement prices were hiked in north India by 10–20 per bag and 5–10 per bag in the east and central regions and a few markets in the south.

The brokerage stated that the sector's cost pressure is receding as the costs of key fuels in the process of making cement, such as pet coke and coal, are easing. With that, the focus is shifting to the pricing trajectory of cement companies, it said.

After a seasonally weak September quarter, expectations were that prices would see a meaningful jump in the December quarter. But the sequential realisation growth for large cement makers such as UltraTech Cement and Shree Cement was muted. Against this backdrop, the latest round of price increases provides some comfort, it added. 

Currently, at an all-India level, the average price of one cement bag weighing 50 kilograms is hovering around 370–375, according to Jefferies.

In the last one week, shares of UltraTech Cement, Ambuja Cements and Sagar Cements rallied in the range of 2–5%. Shares of Shree Cement jumped nearly 10% in a week and also marked a new all-time high of 27,049 apiece in Tuesday's trade.

During the October- December quarter, Shree Cement and UltraTech Cement posted a drop in their net profit, hit by the rise in input costs.

UltraTech Cement reported a 37.90 percent drop in its consolidated net profit in Q3FY23 to 1,062.58 crore from 1,710.14 crore in the same quarter last year. Sequentially, the net profit was up by 40 percent.

The company's operating margins were badly hit by the rise in input costs. During the October-December quarter, "energy and raw material costs were up 33 percent and 13 percent YoY, respectively, while they remained flat on a sequential basis," the company said in the earnings call.

Similarly, Shree Cement reported a 41.40% fall in its consolidated net profit to 282 crore as compared to 483 crore in Q3 FY22. The operating expenses came in higher at 3,573 crore, a jump of 28% YoY.

Sagar Cements, on the other hand, posted a net loss of 27 crore in Q3FY23, as the company's operating expenses rose to 528 crore from 287 crore in Q3FY22, an increase of 84% YoY.

However, brokerage firms are bullish on the sector, given that the government remains focused on developing the country’s infrastructure as well as low-cost and affordable housing.

India's infrastructure-led investments, mass residential projects, and broad-based economic growth will keep cement demand solid, said Moody's Investors Service in a report.

The rating agency said the country's cement production will climb by around 6%–8% over fiscal years 2023 and 2024, following a 21% jump for the fiscal year ending March 2022.

According to Moody's, a growing housing sector, which typically accounts for 60%–65% of India's cement consumption, will remain a key demand driver. Also, continued large investments in roads and infrastructure projects will fuel cement demand, it noted.

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

Article
Commodity prices and stock market
First Published: 21 Feb 2023, 05:42 PM IST