UltraTech Cement, Ramco Cements, Shree Cement: Good days ahead for cement sector?

Cement sector outlook: The cement sector will likely see good days ahead as the companies are expected to see improvement in their margins. During FY22 and 23, the cement companies' margins and profitability were impacted by increasing raw materials. Due to lesser demand, the companies could not pass on the raw material costs to customers. In FY23, the companies' expenses jumped 55 per cent.

However, the situation could turn favourable for cement companies now that the cost of the raw material has started decreasing. As per Zee Business Research, over the last six months, the prices of imported coal have declined by 45 to 60 per cent. Additionally, the prices of pet coke have also fallen by 25 to 35 per cent in the last six months.

Moreover, being at a premium to the imported material, domestic pet coke prices are expected to fall further, the business desk says. In May, Indian Oil Corp (IOC) reduced the price of pet Coke by 11 per cent. Further, in April and May, cement demand rose 10 per cent and it is estimated to rise in the coming days too. Between March and May, cement prices remained stable.

Top picks by analysts

As regards UltraTech Cement, HDFC Securities, in its recent research report, said, "We maintain BUY on UltraTech Cement (UTCEM) with a revised target price of Rs 9,305/share (16.5x Mar-23E consolidated EBITDA). Post our recent interaction with the management, we remain convinced of the company’s growth prospects, superior margins, and healthy balance sheet."

UTCEM is targeting strong growth across both its cement and non-cement businesses (white/putty, RMC, and construction chemicals). Its ongoing initiatives to bolster green energy usage, lead distance moderation, and tailwinds from fuel cost reductions should drive a margin rebound. "Despite its large annual Capex estimate (Rs 60 billion each in FY24/25E), we estimate UTCEM’s balance sheet to turn net cash in FY25E. It remains one of our top picks in the cement sector," the brokerage added. 

Nirmal Bang Securities is positive on JK Cement. In its May 31 report, the brokerage maintained "BUY" on the stock with a target price of Rs 3,836. "We continue to have faith in the company's capabilities for strategic expansion, cost reduction, optimal utilisation of new facilities, and seizing opportunities as they arise," the brokerage wrote.