Cement shares gain on hopes of demand recovery; UltraTech, Ambuja up 3%

Analysts expect industry margin to bottom out in Q2, with peaking of cost, higher exit of cement prices, and pick-up in construction activity in coming quarters

Shares of cement companies moved up to 4 per cent higher on the BSE in Monday's intra-day trade on expectation of demand recovery post monsoon, and during the next fiscal (FY24) due to pre- general election government spending.

UltraTech Cement, Ambuja Cements, Shree Cement, JK Cement, Dalmia Bharat, India Cements, ACC, and Ramco Cements gained in the range of 2 per cent to 4 per cent on the BSE. In comparison, the S&P BSE Sensex was up 1.09 per cent at 60,616 points at 12:45 PM.

"Given the government's focus on infrastructure spending and affordable housing, the cement sector's long-term growth potential continues to remain healthy. Demand revival is imminent, especially during the festive season, and the January-March peak construction period," UltraTech Cement said post its Q2 results announcement.

Upon completion of the latest round of expansion, the Company's capacity will grow to 159.25 mtpa, reinforcing its position as the third largest cement company in the world, outside of China, the company said.

Meanwhile, ccording to the management of Ambuja Cements,  the cement industry has been facing significant margin pressure due to steep rise in global energy prices. However, recent cooling off in energy prices, and post monsoon demand pick up appears like silver lining for coming quarters.

Analyst at Centrum Broking expect cement prices to stabilise, and benefits of lower fuel cost will start occurring from October-December quarter (Q3FY23).

Moreover, analysts at Emkay Global Financial Services believe that operating costs should peak in Q2FY23, and could decline in the coming quarters, with international petcoke prices down around 35 per cent from the peak to $180/ton.

"The dip in fuel prices is expected to provide cost savings of at least Rs 200/ton from Q3, in our view," the brokerage firm said in sector update.

Industry profitability is likely to be weak in Q2FY23 owing to high-cost fuel inventory and monsoon-led seasonality. However, the brokerage firm expects industry margin to bottom out in Q2, with peaking of cost, higher exit of cement prices, and pick-up in construction activity in coming quarters.