Cement shares in demand; India Cements, Orient, JK Lakshmi rally up to 14%

Cement shares in focus: Shares of cement and cement products companies are in demand. These share have rallied by up to 14 per cent on the BSE in Wednesday’s intra-day trade in otherwise a range-bound market on expectation of healthy outlook.

India Cements, Orient Cement, JK Lakshmi Cement, Udaipur Cement Works, Shiva Cement, Deccan Cements, Prism Johnson, Mangalam Cement, Kesoram Industries, Birla Corporation, Sagar Cements, Ramco Cements and HeidelbergCement India have surged between 5 per cent and 14 per cent.

UltraTech Cement, JK Cement, Shree Cement, ACC and Ambuja Cements are up in the range of 2 per cent to 4 per cent. In comparison, the BSE Sensex was up 0.06 per cent at 78,098 at 10:40 am.

India is the second largest producer of cement in the world, accounting for 7 per cent of the global installed capacity. The cement industry is mainly driven by the consequential number of construction activities with the growing demand and a surging need for residential complexes of urbanised population.

Furthermore, the construction of various infrastructure projects such as airports and roads, undertaken by the government in recent times, propels the growth of the market.

Meanwhile, the demand growth forecast for the industry is closer to 10 per cent. Cement production capacity in the country is expected to steadily grow and achieve 550-600 million tonnes per annum by 2025, according to Kesoram Industries.

For the cement industry in India, the next few years affords it an opportunity of scalability. An upturn in the economy would amount to a further increase in infrastructural spends thereby boosting cement demand. That would enhance the adage of Building More, Building Well and Building Right, the company said.

Among the individual stocks, India Cements surged 14 per cent to Rs 262.15 on the BSE in intra-day trade, on back of over five-fold jump in average trading volumes. A combined 38.07 million shares representing 12 per cent of total equity of India Cements have changed hands on the NSE and BSE.

As per the shareholding pattern of India Cements for the January to March 2024 quarter, Radhakishan Shivkishan Damani and Gopikishan Shivkishan Damani have collectively held 20.78 per cent stake in the company.

Indian Economy is projected to sustain robust growth buoyed by the forecast of above normal rainfall to prop up rural demand, strong domestic demand and sectoral growths. After Lok Sabha Elections and Assembly elections in some States, the centre and States are expected to retain their focus on development agenda, India Cements had said on sector outlook.

That apart, the construction activity is expected to be brisk in the coming months, driven by continued infrastructure spending by the Government, private sector housing and commercial segments.

This presents a healthy demand outlook for cement and the industry, especially in the South, has built adequate capacity to meet the firm demand, at the same time, increasing cost pressure, high cost of logistics, and severe competition in the market are also hang over the head which will affect the margins, India Cement said.

Meanwhile, analysts at Elara Capital expect industry volume to be subdued for Q1FY25 (April-June), due to the impact of the General Elections, heatwave and water shortage. Among major regions, analysts believe, demand is likely to be weakest in South India.

Given weak cement prices and operating leverage, most firms are likely to report a Q-o-Q decline in Ebitda per tonne in Q1FY25. In the lon-run, analsyts noted, cost-saving initiatives taken by firms are likely to bolster margin. The brokerage firm said its analysis indicates the industry historically retains approximately 58 per cent of cost benefits.

“While near-term earnings are expected to be weak, sector is currently trading at an approximately 8 per cent discount to the broader market, compared to their historical average premium of around 28 per cent, which should help prevent a sharp share price correction. From a long-term perspective, we like firms with a higher presence in North India and the Northeast,” Elara Capital said in a note.