“Dealers suggest prices may be hiked by another Rs 15-30 per bag across most regions effective from the first week of April, led by continued strong demand and necessitated by cost escalations,” said Krupal Maniar, analyst, ICICI Securities. “Consensus of FY22-23 estimated earnings upgrades are likely to continue, given strong demand, price hike in March coupled with the announced price hikes, would ensure sustainability of YoY margins in the June 2021 quarter.”
The sector is poised to benefit from growth in public sector construction activity and revival in the housing market. A price hike of 4.7% in Mar 2021 has resulted in the industry to witness sequential price recovery of 1% in March quarter at all India level, but increase in domestic petcoke prices by 15% sequentially had nullified the price hike impact, according to analysts.
“Given sharp increase in fuel prices and freight costs, 1% quarter on quarter price hike is not enough and hence we expect further price hike could be on the cards in the current month,” said Binod Modi, head strategy, Reliance Securities. “We further believe that improved capacity utilization of the cement industry in the March 2021 quarter will aid to save on fixed costs and negate impact of higher fuel prices to an extent and March quarter performance at absolute level is expected to remain robust.”
Despite an average rally of 25% since January 1, many of the stocks including UltraTech, Ambuja Cement,
and Birla Corp are currently trading lower than their five-year average price to earnings.
“Cement companies have far stronger balance sheets and despite the Competition Commission comments once in a while about price hikes, the actual price increases have been in line or lower than inflation, boosting volumes,” said Chakri Lokapriya, CIO & MD, TCG AMC. “In addition to that, a price hike does wonders for their valuation.”
While Binod Modi of Reliance Securities is bullish on stocks such as , , JK Cement, and Sagar Cements, Krupal Maniar of ICICI Securities likes Shree Cement, UltraTech, ACC, and Ramco Cement. Ramco Cement and ACC are on the verge of a technical breakout, according to analysts.
“Ramco Cement has given a consolidation breakout of the last 6 weeks and entered into life time high territory. Positive price setup suggests a momentum towards 1150 with an immediate support at 980 zones,” said Chandan Taparia, Derivatives & Technical Analyst, Motilal Oswal Financial Services. “ACC has set out to give a breakout from its Pole and Flag pattern on a daily scale. It has given a consolidation breakout of the last four years which makes it more promising to catch the momentum.”
