Cement shares in demand; UltraTech, Ambuja, Dalmia Bharat hit new highs

Shares of cement companies continued their northward movement in Monday's session, with frontline stocks like UltraTech Cement, ACC, Ambuja Cement and Dalmia Bharat from the S&P BSE500 index hitting their respective new highs on the BSE in intra-day trade amid a positive outlook.

A gradual recovery in rural housing, supported by the higher minimum support price (MSP) for Kharif crop, increased procurement by government agencies, improved food grain production in rabi harvest and forecast for a third consecutive normal monsoon, bodes well for the cement sector.

UltraTech Cement, Orient Cement, Shree Cement, Ambuja Cements, Ramco Cement and ACC were up between 2 per cent to 4 per cent on the BSE. In comparison, the S&P BSE Sensex was up 0.56 per cent at 52,680 points at 10:33 am. In the past one month, shares of Dalmia Bharat, JK Lakshmi Cement, Ramco Cement and Ambuja Cement have rallied between 11 per cent and 19 per cent, as against a marginal 0.35 per cent gain in the benchmark index.

“Overall, the pent-up demand and pick-up in infrastructure-led construction activity are likely to drive the off-take starting July 2021 once lockdowns are relaxed. The industry’s utilisation is expected to improve to 61-63 per cent in FY2022-FY2023 on an expanded base from a low of 58 per cent in FY2021, however, it is likely to remain lower than 68 per cent in FY2020,” ICRA said in a press release.

ICRA has revised volumetric growth estimates for FY2022 downwards to 10 per cent-12 per cent from 15 per cent earlier. The rising input costs could result in decline in operating margins by around 300 (basis points) bps, however, the credit profile of cement companies is expected to remain stable driven by the healthy cash generation and strong liquidity, it said.

“The localized curbs, which are effective in the majority of states, could cause revenues to drop by more than 17 per cent quarter on quarter (QoQ) in Q1FY22E from Q4FY21 especially in the rural pockets. In terms of non-trade sales, some key major infrastructure projects would continue to support the demand though on a moderate scale due to limited labour availability,” ICICI Securities said in a cement sector update.

In terms of prices, while the majority of price hike taken during April's first week rolled back post imposition of restrictions, June month saw sharp price hikes with East, South and West region witnessing a hike of over 11.8 per cent/8.6 per cent/7.5 per cent, respectively, the brokerage added. "With this, we expect June quarter to close with an average price hike of 6.5 per cent QoQ basis that would help the company to mitigate the cost pressure during Q1FY22 that should lead to broadly flat to positive margins. However, overall profitability is expected to drop by over 20 per cent QoQ due to a fall in the sales volumes," the brokerage firm said in the June quarter result preview.