Cement shares in focus; UltraTech hits 52-week high, Ambuja surges 4%

Profitability of cement companies are likely to improve in fiscal 2024, owing to softening of coal and pet coke prices and better operational efficiency, says Crisil Ratings.

Shares of cement manufacturers were in focus in an otherwise subdued market, with a sector giant UltraTech Cement hitting a 52-week high, while Ambjua Cements surging 4 per cent on expectations of profitability likely to improve in fiscal 2024, owing to softening of coal and pet coke prices.

Among individual stocks, UltraTech Cement hit a 52-week high of Rs 8,049, up 2 per cent on the BSE in Tuesday’s intra-day trade. The stock surpassed its previous high of Rs 7,972.95, touched on May 30, 2023. It had hit a record high of Rs 8,267 on November 8, 2021.

Ambuja Cements was up 4 per cent at Rs 456.70, hitting its highest level since January 2023. ACC, HeidelbergCement India, Orient Cement, Star Cement, JK Cement and Shree Cement trading higher by 2 per cent to 3 per cent. In comparison, the S&P BSE Sensex was down 0.14 per cent at 62,701 at 10:27 AM.
 

The management of the cement companies are optimistic and maintain a positive outlook that the government’s timely and pro-active measures will open more opportunities for the cement sector, that will stimulate cement demand and enhance economic growth.

The Government’s increased spending on infrastructure development, particularly roads, railways, affordable housing and other schemes as announced in the recent Union Budget will see cement demand.

Cement companies' earnings were under pressure in FY22/23 and they saw significant downgrades in earnings estimates as the industry was not able to pass on the entire cost hikes to consumers. Although analysts at Motilal Oswal Financial Services (MOFSL) have seen favorable fuel prices in the last few months, the full benefits do not yet reflect in the earnings of cement companies.

“Though we will watch out for stability in coal and cement prices in the next few months, we believe that potential upside risks to earnings estimates in FY24 could not be negated given a steep reduction in fuel prices (30-46 per cent drop in imported petcoke and South African coal) in YTD CY23,” the brokerage firm said in its cement sector update.

Cement demand remains strong and volumes are estimated to grow in double digits (~10 per cent) YoY in Apr-May'23. Also, cement prices have remained largely stable since Mar'23-exit, which in our view was due to expected benefits from lower input costs, MOFSL said.

Meanwhile, the strong presence of the Adani group in coal, power and logistics verticals will result in structural reduction in cost of production of cement owing to synergy benefits strengthening the business risk profile over the medium term. The financial risk profile of Ambuja Cements will remain strong over the medium term supported by a debt-free balance sheet and robust liquidity, Crisil Ratings said in rationale.

Profitability is likely to improve in fiscal 2024, owing to softening of coal and pet coke prices, better operational efficiency and enhanced synergies between Ambuja and ACC as well as with other group companies, the rating agency said.