Cement shares extend rally on demand recovery hope; JK Cement hits new high

The cement industry demand is slowly improving due to pent up demand and improved rural demand

Shares of cement companies continued their northward journey at the bourses, with most of the frontline stocks trading over 2 per cent higher on Tuesday on demand recovery hope.

UltraTech Cement, Ramco Cement, JK Cement, Ambuja Cement, India Cements, Orient Cement, Heidelbergcement India, ACC and Shree Cement from the S&P BSE500 index were up in the range of 2.2 per cent to 4 per cent on the BSE. In comparison, the S&P BSE Sensex was up 0.34 per cent at 40,730 points, at 09:45 am.

The cement industry demand is slowly improving from the disruption created from Covid-19 due to pent up demand and improved rural demand. In the past month, the share price sof JK Cement, ACC, Ambuja Cements and UltraTech Cement have rallied 14 per cent to 19 per cent, against 5 per cent gain in the benchmark index.

Analysts at Emkay Global Financial Services expect aggregate sales volume of coverage universe to improve 3.4 per cent year on year (yoy) on a better demand scenario in the North, Central and East regions. The brokerage firm believes that there should be further earnings upgrades for its coverage universe.

“Demand recovery has surprised positively and we expect government-led infrastructure projects to further drive demand momentum. We expect cost-saving strategies to continue to benefit in Q2 and a sudden reversal in other expenses/employee costs may led to negative surprises in Q2FY21,” the brokerage firm said in Q2FY21 preview.

Meanwhile, shares of JK Cement hit a fresh record high of Rs 1,713 today, surging 19 per cent in the past month. Last week, the company successfully commissioned 0.7 million tonne per annum grey cement grinding capacity and also commenced commercial dispatches from 8th October, 2020. With this, the company has successfully completed its grey cement capacity expansion plan of 4.2 million tonnes per annum comprising Rajasthan (2 MnTPA), Uttar Pradesh (1.5 MnTPA) and Gujarat (0.7 MnTPA).

JK Cement is predominantly a north-based cement player. Currently, demand in the northern part of India is not majorly impacted due to Covid-19. Analysts at Angel Broking expect the company to realize better EBIDTA/tonne in the current scenario majorly due to reduction in cost of power and fuel. The brokerage firm is positive on JK Cement from an investment point of view due to better regional mix in cement portfolio, increased cement capacity and improving demand scenario.