 "South-based cement players better placed")
Despite the Chennai floods and price corrections, the stocks of South India-based cement players have not seen a sharp correction. Ramco Cements is marginally down at Rs 371 and Dalmia Bharat is up 2.2 per cent at Rs 764, compared to levels seen in November-end.
However, India Cements is down 7.5 per cent at Rs 82.05. While demand and realisation in the December quarter have remained, leading to correction in prices (estimated Rs 10-20 a 50-kg bag), the recent severe rains have led to some dip in sales. This could result in companies reporting a soft third quarter, feel analysts, adding demand will get a major push thereafter.
The damage by rains will lead to a pick-up in construction and there will be a push from the government side, too. While analysts had been anticipating a turnaround and boost from the March quarter, the recent demand triggers should lead to increase in capacity utilisation, round 60 per cent in the south, compared to the all-India average of 70 per cent.
Cement prices in South India had gained Rs 5-10 for a bag in October but could not sustain, falling Rs 3-5 a bag in November, due to correction in the Bengaluru and Kerala markets. Average prices were Rs 350-355 a bag, down one per cent over October and up 14 per cent over a year, according to Reliance Securities’ channel checks. Analysts at Karvy say rainfall in Tamil Nadu and coastal Andhra are playing a key role in sluggish demand in the near term.
Analysts at Reliance Securities say at the current market price, they have a ‘Buy’ recommendation on UltraTech Cement in the large-cap space. In the mid-cap space, Ramco Cements is their pick from south-centric players. India Cements, too, would benefit from a boost in demand. Analysts at Angel Broking also like Ramco and India Cements. However, the stress on their balance sheets could keep Street sentiment in check.
Analysts at Nomura said in recent note, “As we adjust our target price for India Cements with Chennai Super Kings’ valuations and incorporate our changes in earnings estimates to reflect better pricing in South India, the stock appears fairly valued.” They had a target price of Rs 87. Dalmia Bharat also has adequate capacities in Tamil Nadu and Andhra Pradesh, and should benefit from growing cement demand. Analysts are positive on the stock, even as it has seen a sharp run-up almost doubling in a year.
