Sharekhan, in its report, has highlighted that the cement industry is expected to see weak demand in April as key states like Maharashtra, Uttar Pradesh and Delhi have announced lockdowns (barring a leeway for essentials) led by rising COVID-19 cases. As per sector note dated April 15, 2021, the industry had taken price hikes in the early part of April 2021 of 4.3% mom (up 11.2% yoy) with Eastern and Southern regions seeing an 11.9% mom and 5% mom hikes. As per Sharekhan’s recent channel checks, the prices in South and East have been more or less held up as states in these regions have not announced stringent lockdowns.

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However, there have been instances of Rs 10-20 per bag reversal in cement prices in Northern and Western regions. Demand is expected to be weak in April 2021 as construction activities are halted in both trade and non-trade segments due to the imposition of lockdowns in key states. UltraTech Cement being a sector leader is expected to be affected by weak demand in April.

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However, Sharekhan believes that UltraTech Cement in particular and the sector in general to witness release of pent-up demand as major states ease lockdown restrictions. India’s vaccination drive has been the fastest till date with more than 13 crore people getting vaccinated in 95 days (versus the US taking 101 days and China 109 days). Further, the infrastructure and real estate sector have been much better prepared this time with measures taken to retain labour at sites by providing food, shelter and medications.

Hence, Sharekhan says it expects the cement sector to see a bounce back in demand as COVID-led restrictions ease with rising inoculation of the population during FY2022. Yet, as the situation is still evolving and the full impact of the COVID-led restrictions in various states cannot be fully ascertained as of now, on the industry’s demand outlook for FY2022. Structural growth drivers for the industry remain intact in terms of the government's focus on infrastructure investments (especially roads), affordable housing and improving residential real estate segments.

UltraTech’s 19.5 mtpa expansion plan at a cost of Rs 6527 crore (without affecting its current de-leveraging plan) would ensure its industry outperformance over the next 4-5 years. Hence, Sharekhan maintains Buy rating with a price target of Rs 8000 on UltraTech Cement.