Brokerages see strong demand outlook for cement sector; stocks rise up to 10% in anticipation

On the back of positive outlook and heavy volumes, shares of cement companies surged up to 10 per cent on the BSE in the intraday trade on Wednesday. Cement demand has been firming up with companies pushing for volumes to meet year-end targets despite headwinds including elevated input costs, labour unavailability, say experts. 

Individually, Andhra Cement surged most and touched an upper circuit of 10 per cent, followed by JK Lakshmi Cement which was up over 7 per cent today. Dalmia Cement was up nearly 5 per cent around the same time while Sanghi Industries and Ramco Cement gained over 4 per cent each on the BSE. 

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While Ambuja Cement, UltraTech Cement, India Cements, and Kesorama Industries gained between 2-2.5 per cent on the BSE intraday trade. 

Domestic brokerage firm Nirmal Bang believe that input cost pressures are likely to sustain for a prolonged period compared to earlier expectations, demand is better while pricing power will make a comeback soon given the busy season.  

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margins have likely bottomed out in third quarter of the financial year 2021-22 and despite further cost pressures, brokerage do not expect EBITDA margins to fall substantially below those levels and sees improvement in pricing.  

Elevated coal prices are here to stay, and the industry needs to take aggressive price hikes to sustain margins and focus on profitability rather than market share. Top picks in the cement sector of Nirmal Bang are Ultratech, JK Lakshmi Cement and Sagar Cements among others. 

Besides, the decrease in crude oil prices from all-time high US $130/bbl touched earlier this month, is also aiding the overall outlook of the sector. Bi product of crude oil is also used in the manufacturing of cement. Besides raw material prices pet coke and coal, are also key ingredients in the process. 

Coal or pet coke is a key input material for cement production as it constitutes around 30 per cent of total operating cost of cement, the brokerage said.