Cement shares in focus; Shree Cement hits record high, UltraTech up 3%

Shares of cement companies were trading higher for the second straight day on Tuesday on expectation of revival in demand going forward.

While there were no specific announcements in the Budget pertaining to the cement industry, demand for the commodity will pick up due to announcements related to infrastructure, housing and rural development.

Finance Minister Nirmala Sitharaman on Saturday announced increase in allocation of PMAY (Pradhan Mantri Awas Yojna) and also various other plans for the construction/infrastructure sector. The government also proposed extension of additional deduction of Rs 1.5 lakh interest on loans for affordable housing loan and extension on the profits earned by developers of affordable housing project by a year to 31 March 2021.

Among individual stocks, Shree Cement rallied 6 per cent to hit a record high of Rs 24,660 on the BSE. The stock surpassed its previous high of Rs 24,250, touched on January 13, 2020 in intra-day trade.

UltraTech Cement, Ambuja Cements, ACC, Orient Cement, JK Lakshmi Cement, Dalmia Bharat, Mangalam Cement, HeidelbergCement India, India Cements and JK Cement were up 2 per cent to 5 per cent on the BSE. In comparison, the S&P BSE Sensex was up 1.9 per cent or 763 points at 40,636 at 01:10 pm.

“Cement demand in non trade segment has been weak in FY20E. Increase allocation under PMAY, interest benefit under affordable housing and Infra capex to increase cement demand under non trade segment,” IDBI Capital said on the Budget impact.

On an aggregate basis, the allocation to road sector increased by 14 per cent. This would support 6-7 per cent growth in cement demand for FY21, analysts at Prabhudas Lilladher said in a report.

UltraTech Cement was up 3 per cent to Rs 4,495, extending its previous day’s 2 per cent gain on the BSE. The stock erased its entire 3 per cent losses recorded on Budget day. However, the stock is still 5 per cent down from its recent high of Rs 4,753, touched on January 27, 2020.

“Ultratech is the largest cement manufacturer in India and offers a proxy play on India’s growing infra spend and ‘housing for all’ focus. After a spate of M&A/ aggressive organic expansion, we believe the strategic focus is now shifting towards portfolio optimization (freight synergies, better trade mix), profitability improvement and balance sheet deleveraging,” analysts at JP Morgan said in recent report.

Strong free cash flow generation should deliver significant debt reduction over the next two years and drive stock performance, in our view, it said.

Meanwhile, oil prices fell to the lowest in more than a year on Monday, dragged down by concern over demand in China after the coronavirus outbreak, though the possibility of deeper crude output cuts by OPEC and its allies offered some price support, a Reuters report said.