Cement stocks in demand; Dalmia Bharat, JK Cement, Ramco Cement at new high

The government's thrust on infrastructure spending and affordable housing bodes well for cement demand, Motilal Oswal Securities said in a note

Shares of cement companies were in demand on Friday with Dalmia Bharat, JK Cement, and Ramco Cement hitting their respective new highs, while Ambuja Cements, Birla Corporation and Prism Johnson touched their respective 52-week highs on the BSE in intra-day trade. The stocks climbed up to 7 per cent, as compared to 0.18 per cent rise in the S&P BSE Sensex, at 51,625 points, at 10:32 am.

The government’s thrust on infrastructure spending and affordable housing bodes well for cement demand. Analysts expect cement demand to remain flat in FY21, but grow 11 per cent year on year in FY22 – on the back of government spending on infrastructure and affordable housing. We prefer companies that are moving down the cost curve, have the potential to gain market share, and provide valuation comfort, Motilal Oswal Securities said in Union Budget 2021-22 update.

Among the individual stocks, Dalmia Bharat surged 7 per cent to Rs 1,500, also its new high on the BSE. In the past one week, it has rallied 21 per cent after recording strong volume growth of 14 per cent in the December quarter (Q3FY21).  Earnings before interest, taxes, depreciation, and amortization (EBITDA) grew 51 per cent year on year (YoY) at Rs 691 crore, EBITDA/T increased of 32 per cent YoY and capacity utilization of 81 per cent.

JK Cements, too, hit a new high of Rs 2,569 after rising 6 per cent intra-day. The stock has soared 14 per cent in the past three trading days after reporting an increase of 74.82 per cent YoY in its consolidated net profit to Rs 217 crore for Q3FY21. Its revenue from operations was up 24.52 per cent YoY at Rs 1,833 crore.

Meanwhile, the company's board approved setting up of an integrated greenfield grey cement plant of four million tonnes per annum by its wholly-owned subsidiary Jaykaycem (Central) Ltd at Panna, Madhya Pradesh.

The management’s efforts to improve cost efficiencies through newly added capacities (4.2 MT) are expected to drive profitability. Thus, we believe there is further scope for growth and margin expansion. The funding for phase-II expansion will be partially be done by incremental inflows from newly added capacities. Hence, it would keep debt levels under check, analysts at ICICI Securities said in result update.