Cement shares in demand; UltraTech, ACC, Ambuja hit record highs

Going forward, easing of localised curbs and post monsoon, analysts expect a sharp rebound in demand for cement.

Shares of cement makers were in demand with frontline stocks such as UltraTech Cement, ACC and Ambuja Cements all hitting their respective all-time highs on the BSE in the intra-day trade. The buying interest at these counters can be attributed to expected rise in cement demand as per market analysts, post easing of localised curbs and monsoon.

Among individual stocks, UltraTech Cement hit a record high of Rs 7,931, up 2 per cent in intra-day trade. Ambuja Cements ( up 2 per cent at Rs 430.35) and ACC  (up 2 per cent at Rs 2,469) too hit new highs, surpassing their previous highs recorded on August 4, 2021.

Besides these three stocks, Dalmia Bharat, JK Cements, Orient Cement, Shree Cement and Ramco Cement were up 2 per cent each. In comparison, the S&P BSE Sensex was up 0.20 per cent at 57,455 points at 09:54 am.

In April-June quarter (Q1FY22), localised curbs in majority of the states impacted sales volume that were down 19.6 per cent quarter on quarter (QoQ) with south based companies reporting the steepest decline of over 28 per cent on a QoQ basis. However, sales volumes continued to remain at around 3.2 per cent above pre-Covid levels indicating strong support from infra and housing demand.

Key energy commodities like pet coke, imported coal and diesel, which together account for more than 55 per cent of costs, rose sharply. This led to total cost increase of 3.1 per cent QoQ. However, strong realisations (up 4.4 per cent YoY, 5.6 per cent QoQ) helped cement companies keep the margins healthy at 26.7 per cent (up 119 bps YoY, 178 bps QoQ). This clearly demonstrates player’s capability to pass on the cost increase on to the consumers. Overall, the operational performance remained broadly better than our estimates, ICICI Securities said in their Q1FY22 earnings wrap.

Meanwhile, domestic cement companies in recent years have been investing in alternative/renewable energy sources, replacing hitherto known sources such as fuel (in the form of coal) as well as thermal power generation which has afforded the players multiple benefits apart from reducing carbon dioxide footprint.

As per an ICRA analysis, the usageof renewable sources of energy such as solar energy, wind energy and waste heat recovery system (WHRS) have been gaining momentum, in particular the latter has emerged as one of the cheapest source of power generation given the negligible input costs.

By generating power using the hot gases produced during the manufacturing process, WHRS is more cost efficient and helps in augmenting the operating profitability. With 20 per cent-25 per cent WHRS replacement in total power capacity, the power cost savings for cement companies is estimated to be around 14 per cent-18 per cent resulting in an improvement in the operating margins by around 110-140 bps, Anupama Reddy, Assistant Vice President & Sector Head, Corporate Ratings, ICRA said.