JK Cement, Birla Corp downgraded at JM Financial; cement Q3 preview

JM Financial expects companies under its coverage to deliver robust growth of around 10 per cent Y-o-Y on a comparable basis in the third quarter

JM Financial downgraded JK Cement and Birla Corp to ‘Add’, citing a more balanced risk-reward for JK Cement and rising risks of market share loss at Birla Corp despite its reasonable valuation.

 

The brokerage said intensifying competition in the cement sector, particularly from larger players pursuing market share gains, is likely to weigh on profitability over the medium term. As a result, it has cut its aggregate Ebitda estimates for financial years 2025-26 to 2027-28 (FY26 to FY28) by 4-5 per cent.

 

JM Financial continues to prefer UltraTech Cement, which remains its top pick in the sector. In its third-quarter preview, the brokerage expects industry volumes to grow 8-9 per cent year-on-year (Y-o-Y), accelerating from 4-5 per cent in the first half of the year. On a reported basis, Ebitda for its cement coverage universe is estimated to rise around 26 per cent Y-o-Y, driven by stronger volume growth and improved realisations.  ALSO READ | Buy Tenneco Clean Air India, says JM Financial; flags top growth drivers 

 

However, Ebitda growth is seen moderating on a sequential basis, with JM Financial estimating a 4 per cent quarter-on-quarter (Q-o-Q) increase due to weaker pricing and lower subsidy income following the goods and services tax rate cut to 18 per cent. Average Ebitda per tonne is expected to decline about 6 per cent sequentially to ₹891 per tonne. Rising fuel costs and rupee depreciation are also likely to have an adverse impact of around ₹50 per tonne in the fourth quarter.

 

In terms of volumes, JM Financial expects companies under its coverage to deliver a growth of around 10 per cent Y-o-Y on a comparable basis in the third quarter. 

 

UltraTech Cement and JK Cement are expected to lead with more than 15 per cent volume growth, while Ambuja Cement and JSW Cement are seen posting growth of 14-15 per cent. Shree Cement is likely to report less than 5 per cent volume growth, indicating continued market share loss, while Birla Corp is the only company expected to see a volume decline of around 6 per cent Y-o-Y.  ALSO READ | APL Apollo gets target price hike from Antique; 'Buy' rating maintained 

Looking ahead, the brokerage said the onset of the busy construction season should support a recovery in cement prices and profitability, helping sustain near-term performance momentum despite heightened competitive intensity in the sector.

 

JM Financial has a buy rating on Ambuja Cement with a target price of ₹675 and on JSW Cement with a target of ₹165. The brokerage has an add rating on Birla Corporation with a target price of ₹1,230 and on JK Cement with a target of ₹6,500.

 

=====

 

(Disclaimer: The views and investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)