Cement shares in focus; Ambuja Cements, JK Lakshmi Cement hit record highs

Analysts expect a sustainable demand recovery in volumes in coming quarters on the back of gradual relaxations in lockdowns, expectations of construction activities gaining momentum post-monsoon

Shares of cement companies were in focus on the bourses on Tuesday in an otherwise subdued market with Ambuja Cement (up 6 per cent to Rs 360) and JK Lakshmi Cement (up 4 per cent at Rs 622.50) hitting their respective record highs on expectation of the profitability of the sector companies remaining intact despite cost rise.

Besides these two stocks, UltraTech Cement, ACC, Orient Cement, Star Cement, India Cements, The Ramco Cement, Shree Cement and JK Cements were up between 1 per cent and 3 per cent on the BSE. In comparison, the S&P BSE Sensex was up 0.10 per cent at 52,934 points at 09:35 am.

Industry volumes likely increased in high-teens month on month (MoM) (up in high single-digits year on year (YoY)) in June 21 and recovered to April 21 levels, owing to the easing of restrictions and premonsoon/pent-up demand. On a MoM basis, volumes likely grew less than 20 per cent MoM in the North region, in high-teens in the East and South regions and in low double digits in the West and Central regions.

Analyst at Emkay Global Financial Services expect a sustainable demand recovery in volumes in coming quarters on the back of gradual relaxations in lockdowns, expectations of construction activities gaining momentum post monsoon, low base of last two years, government focus on infrastructure spends, and strong June 2021 exit.

While YoY as well as quarter on quarter (QoQ) comparison in April-June quarter of financial year 2021-22 (Q1FY22E) is not meaningful given the varying degree of lockdown / restrictions due to covid, industry is expected to post around 45 per cent YoY growth in volumes with almost stable EBITDA/te YoY on a reported basis.

“On a QoQ basis, volumes are expected to be down around 20 per cent QoQ vs usual around 10 per cent QoQ decline, while average EBITDA/te may rise 8-9 per cent QoQ despite cost escalations. We expect average realisation to rise 5 per cent QoQ (Rs230/te) and 2.6 per cent YoY (Rs130/te) and total cost/te to increase around 3 per cent both QoQ and YoY (Rs120/te). Consensus earnings are yet again likely to be upgraded given better-than-expected prices sustaining till date in seasonally weak monsoon necessitated by cost escalations,” ICICI Securities said in result preview.