Cement shares in demand; UltraTech, Shree, JK, Dalmia Bharat gain up to 5%

While FY25 is seeing slow growth and subdued govt spending, CareEdge maintains a long-term outlook aligned with India's broader growth strategy with housing, continuing to be primary driver of cement.

Shares of cement manufacturers were in demand and rallied up to 5 per cent on the BSE in Monday’s intra-day trade in an otherwise subdued market on expectations of a stronger demand in December, which could support price hike attempts by the industry.

 

UltraTech Cement, Shree Cement, JK Cement, Dalmia Bharat, Grasim Industries, Nuvoco Vistas Corporation, Ramco Cement, ACC and Amubja Cements were trading higher in the range of 1 per cent to 5 per cent. In comparison, the BSE Sensex was down 0.11 per cent at 79,717 at 11:10 am.

 

Cement stocks have undergone healthy retracement and were seen rebounding after taking support at key moving averages, according to technical analyst at ICICI Securities. Within this space the brokerage firm said they remain positive on Ramco Cement which has been trading inside contracting triangle formation and higher base above its 52 week EMA offering fresh buying opportunity.

 

 

Shares of Ramco Cement were up 1.5 per cent at Rs 1,030.25 on the BSE. The stock hit a 52-week high of Rs 1,057.85 on December 14, 2023.

 

Among other stocks, UltraTech Cement gained 3 per cent at Rs 11,525 in intra-day trade after the company said it increased the capacity of its unit located at Kukurdih in Chhattisgarh’s Balodabazar-Bhatapara district.

 

“As part of its ongoing capacity expansion programs, the company has identified an opportunity for debottlenecking at its integrated unit at Kukurdih, Chhattisgarh. The unit’s capacity has increased by 0.6 mtpa (million tonne per annum), i.e. from 2.7 mtpa to 3.3 mtpa,” UltraTech Cement said in a regulatory filing on Friday after market hours. Debottlenecking is a process that involves identifying and removing bottlenecks in a system to increase production capacity and efficiency.

 

UltraTech’s ambitious capacity expansion capitalises on the substantial long term growth potential of India’s cement sector. Its growth trajectory aligns closely with India’s broader growth story, the company said.

 

By increasing its scale, the company will meet the rising demand for cement nationwide. Increase in Government spending on Infrastructure sector and rising demand from the urban housing sector is expected to generate a sustainable volume growth of 7-8 per cent in future years, the company said.

 

Meanwhile, according to analysts at Elara Capital, quarter-to-date all-India average cement price increased modestly by ~2 per cent quarter-on-quarter (QoQ) but remains ~9 per cent lower year-on-year (YoY). The sequential price increase has been the highest for North and Central India whereas South India remains largely stagnant. Meanwhile, cement demand has shown no significant acceleration. As a result, while the industry may experience a seasonal recovery in earnings, YoY performance is likely to continue to show a contraction in Q3FY25, the brokerage firm said in cement sector report.

 

On the demand side, several factors contributed to a slow recovery in November, including festivals in the first half of the month, limited labor availability due to rise in agricultural activities in rural areas, the start of marriage season, construction ban in Delhi, elections in Maharashtra & Jharkhand, and delayed fund disbursements by some State governments. 

 

Market intermediaries expect stronger demand in December, which could support price hike attempts by the industry. Price hikes of Rs 5-25 per bag are likely in several regions in December, the brokerage firm said.

 

According to Jefferies, the performance of Indian cement companies is likely to recover in the second half of the current fiscal, as its interaction with dealers suggests bottoming out of prices and better demand scenario, the media reported.

 

Meanwhile, according to CareEdge Ratings, the demand growth rate of Cement Sector is expected to moderate to 5-6 per ent in FY25 from earlier highs of 8-9 per cent, primarily due to the high base effect and softer demand observed so far.

 

The cement sector has encountered several headwinds recently, collectively contributing to subdued offtake during the first half of this fiscal year. In the first half of the FY25, the cement demand has relatively been stagnant across the industry, influenced by the impact of general elections, extended monsoon season, and the sluggishness in infrastructural activities. In the recent months of October and November, the sluggishness in cement demand growth was influenced by the festive season and the current construction ban in the northern region, CareEdge Ratings said.

 

Despite challenges, the cement sector outlook remains optimistic as long-term demand remains robust. While FY25 is seeing slow growth and subdued government spending, we maintain a long-term outlook aligned with India's broader growth strategy with housing, continuing to be primary driver of cement demand, or so, the bedrock of the industry, said Sabyasachi Majumdar, Senior Director, CareEdge Ratings.

 

Approximately 55 to 60 per cent of the total cement demand comes from the housing sector, while infrastructure contributes around 30 per cent and the remainder comes from the industrial segment. This distribution, however, has evolved over time. CareEdge Ratings anticipate that infra share will further increase to 33 to 34 per cent in the coming years due to the governments strong infra push and increased budget allocations.