Shares of cement manufacturers continued to trade higher for the fifth straight day on Monday on expectations of demand recovery, as analysts believe that risk/reward for the sector looks favorable at current levels.
Shree Cement, Ramco Cement, Birla Corporation and Orient Cement have rallied more than 10 per cent in the past one week. On the other hand, UltraTech Cement, Ambuja Cements, ACC, JK Lakshmi Cement, India Cements, Star Cement and Heidelberg Cement were up in the range of 5 per cent to 9 per cent during the same period. In comparison, the S&P BSE Sensex was up 3 per cent.
After a period of meaningful underperformance/valuation de-rating in the second half of last year, analysts at JP Morgan see the case for a positive trade for the stocks over the next few months. Large-caps, for instance, declined 15-18 per cent relative to Sensex during the period.
"Improvement in demand trends (December saw some uptick) in the seasonally peak period, favorable policy noise (roadmap on National Infrastructure Pipeline and Budget), and better cement pricing discipline will likely support stock price performance," the foreign brokerage firm said.
Expected weak Q3 earnings, to be released over January/February, are widely discounted in the market. Commentary on the demand outlook and cement price hike announcements from mid-January (already seen in select markets) will be the key catalysts for the stocks," it added. The brokerage firm believes risk/reward for the sector is favorable at current levels.
Meanwhile, analysts at Elara Capital expect the cement industry to come in the black, with a gradual improvement in demand post a muted 9MFY20, primarily driven by improved government spend and revival in retail participation.
"Simultaneously, improved utilization levels will provide better pricing power to cement firms while operating cost would remain under control backed by lower fuel prices and improved operating leverage," the brokerage firm said in quarterly preview.
Analysts at JP Morgan expect 5-6 per cent industry demand growth in FY21/22, factoring in mid-single-digit growth in infra spends. Overall, they expect the policies turning more favorable for the sector as the industry heads towards Budget, and efforts will be made to ease developer/project construction financing and a roadmap toward executing the NIP program is put into place.
|THE RAMCO CEMENT||829.65||750.95||10.5|
|JK LAKSHMI CEM.||333.05||303.20||9.8|