Cement stocks under pressure as UltraTech announces Rs 12,866 cr capex plan

Shares of cement companies like UltraTech Cement, Dalmia Bharat, JK Cement, The Ramco Cements and Shree Cement were down in the range of 2 per cent to 6 per cent.

Shares of cement companies were under pressure as they fell up to 6 per cent on the BSE on Friday in an otherwise firm market. The fall comes after the sector major UltraTech approved a new capital expenditure (capex) plan of Rs 12,886 crore to tide increased competition in the sector.

The capex is aimed to increase capacity by 22.6 million tonnes per annum (MTPA) through brownfield and greenfield projects. With this, it would enable set-up of integrated or grinding units as well as bulk terminals across the country. The company said that the commercial production from these units will go on stream in a phased manner by financial year 2024-25 (FY25).

Following the announcement, shares of UltraTech Cement dipped 2.5 per cent to Rs 5,857 on the BSE in intra-day trade. Other cement stocks like Dalmia Bharat, JK Cement, The Ramco Cements and Shree Cement were down, too, in the range of 4 per cent to 6 per cent. Meanwhile, Grasim Industries, ACC and Ambuja Cements traded lower between 1 per cent and 2 per cent. In comparison, the S&P BSE Sensex was up 0.98 per cent at 56,363 points.

That apart, the company has more than doubled its capacity over the last five years and is committed to meeting India's future needs for housing, roads, and other infrastructure.

"This investment is backed by a strong conviction on India's growth potential and a deep or nuanced understanding of the market dynamics of the cement industry," the management said.

Analysts at Motilal Oswal Financial Services expect cement stocks to underperform in the near-term, given the sustained increase in energy costs, near-term demand weakness, partial rollback of price hikes in May, thereby, weighing on company's margin in first half of FY23.

“We have kept our estimates unchanged as of now; however; we expect UltraTech Cement to turn net cash positive in FY26 (from FY24 earlier) after today’s announcement of fresh capex,” the brokerage firm said with ‘buy’ rating on the stock and target price of Rs 7,825 per share.