Shares of UltraTech Cement, a flagship company of the Aditya Birla Group, marked a new 52-week high of ₹7,600 apiece in the previous trading session. The stock witnessed a strong bull run since June of last year, delivering a return of 46.22% compared to the Nifty 50's return of 11.68% during the same period.
In addition to that, the stock also ranks as the second-top gainer in the Nifty 50 index, with a YTD return of 8.80%. At present levels, the stock is only 8.45% away from its all-time high of ₹8,269, which it previously reached in November 2021.
Despite their weak performance in the December quarter, cement stocks are moving higher as the sector's cost pressure is receding as the prices of key fuels in the process of making cement, such as pet coke and coal, are easing.
Furthermore, the demand for cement is experiencing a surge, and analysts anticipate that it will remain strong, buoyed by pre-election spending, continued government focus on infrastructure spending, and sustained momentum in residential housing.
In a recent note, brokerage firm Centrum Broking highlighted that the cement sector in India is likely to witness the twin advantage of better demand and a softening of operating costs, thereby leading to the recovery of margins.
The brokerage expects cement demand to grow at a healthy CAGR of 7.8% over FY22–25E. It believes that cement demand can grow at 8–10% in FY23E and FY24E before normalizing back to less than 6% in FY25E.
Multiple government schemes like PMAY and PMGSY will keep rural demand healthy, whereas the revival of urban real estate with a focus on the affordable housing segment is also likely to keep urban demand in good stead.
Centrum expects the east and central regions to deliver better demand growth compared to the rest of the regions.
The government has recently increased the outlay for the Pradhan Mantri Awas Yojana by 66% to ₹66,000 crore in the union budget. This allocation is expected to serve as a significant catalyst for affordable housing projects across various regions, thereby generating a surge in demand for cement and building materials.
The decline in international and domestic pet coke and coal prices since Q3FY23 is expected to add to operational profitability in terms of EBITDA/tonne during Q4FY23 and Q1FY24, provided cement prices remain in stable to positive territory, according to Sharekhan.
The cement industry’s outlook remains positive, led by healthy demand and expected improvements in operational profitability owing to expected decline in power and fuel costs, provided the industry does not pass on the benefit of lower costs to gain volume share, it added.
Earlier in February, Moody's Investors Service stated in a report that 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.
Moody's has stated that the housing sector in India is expanding, and since it typically accounts for 60% - 65% of the country's cement consumption, it will continue to be a crucial driver of demand. Additionally, the large-scale investments in infrastructure projects and roads will further stimulate the demand for cement.
42 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.