Axis Securities bullish on cement industry; picks UltraTech Cement, Ambuja Cements, JK Cement as top stock bets
According to Axis Securities, cement demand remains positive as we conclude FY24, driven by pre-election spending, ongoing government emphasis on infrastructure development, and sustained real estate activity. Moreover, the higher budgetary allocation to infrastructure and construction in the interim budget 2024-25 is expected to sustain demand momentum into FY25.
- Apr 5, 2024,
- Updated Apr 5, 2024 12:28 PM IST
Dalal Street is all set to kick start the earnings season for the quarter ended March 2024. In its recent report on the cement sector, brokerage firm Axis Securities said that it remains positive on the dynamics of the cement industry based on government initiatives, premiumization product strategy, green energy transition, demand-supply dynamics, greater consolidation and favourable industry outlook.
The brokerage firm has picked UltraTech Cement, Ambuja Cements, Birla Corporation, JK Cement, JK Lakshmi and Star Cement as top picks. "After observing a slowdown in demand growth during the third quarter of FY24, the momentum in cement demand accelerated in the fourth quarter of FY24 (Q4FY24), despite facing a higher base from the previous year, which had seen growth rates of 11-13% in Q4FY23.
"This surge in demand was predominantly fueled by government-led initiatives in infrastructure and housing development, alongside an uptick in real estate demand. Following a lacklustre performance in Jan’24, cement demand gained traction in Feb’24 and concluded on a high note in Mar’24. A bustling construction period further bolstered high single-digit volume growth throughout the quarter," it added.
According to Axis Securities, cement demand remains positive as we conclude FY24, driven by pre-election spending, ongoing government emphasis on infrastructure development, and sustained real estate activity. Moreover, the higher budgetary allocation to infrastructure and construction in the interim budget 2024-25 is expected to sustain demand momentum into FY25.
With the general election scheduled for the first quarter of FY25, the brokerage firm believes that the cement demand is expected to experience volatility due to disruptions caused by election-related activities. However, demand is anticipated to gradually recover post-election. Additionally, there is a prevailing expectation that the existing government will secure another term, leading to the continuation of infrastructure-related spending, which will further drive cement demand.
It also noted that both domestic and international petroleum coke and coal prices have witnessed a significant decrease of 25-30 per cent on a year-on-year basis. The average power/fuel consumption prices for most cement companies are anticipated to range between $150-160 per tonne, a decline from the $170-$180 per tonne range in Q3FY24. The positive impact of the low-cost inventory is expected to be reflected in Q4FY24, it said.
Lastly, the moderation in cement prices observed in Q4FY24 has introduced pricing headwinds, with prices correcting to the levels seen in Q2FY24 on average. Axis Securities estimates that realizations for our coverage companies may moderate by 4%-5% during the quarter. Channel checks indicate that cement manufacturers are considering price hikes in April 2024, ahead of the onset of the monsoon season.
"The sustainability of these higher prices will be a key factor to monitor. The addition of new capacities is anticipated to exert pressure on cement prices, contributing to their volatility. The positive impact of higher prices is expected to be more pronounced in Q1FY25, contingent upon their sustainability," it added.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
Dalal Street is all set to kick start the earnings season for the quarter ended March 2024. In its recent report on the cement sector, brokerage firm Axis Securities said that it remains positive on the dynamics of the cement industry based on government initiatives, premiumization product strategy, green energy transition, demand-supply dynamics, greater consolidation and favourable industry outlook.
The brokerage firm has picked UltraTech Cement, Ambuja Cements, Birla Corporation, JK Cement, JK Lakshmi and Star Cement as top picks. "After observing a slowdown in demand growth during the third quarter of FY24, the momentum in cement demand accelerated in the fourth quarter of FY24 (Q4FY24), despite facing a higher base from the previous year, which had seen growth rates of 11-13% in Q4FY23.
"This surge in demand was predominantly fueled by government-led initiatives in infrastructure and housing development, alongside an uptick in real estate demand. Following a lacklustre performance in Jan’24, cement demand gained traction in Feb’24 and concluded on a high note in Mar’24. A bustling construction period further bolstered high single-digit volume growth throughout the quarter," it added.
According to Axis Securities, cement demand remains positive as we conclude FY24, driven by pre-election spending, ongoing government emphasis on infrastructure development, and sustained real estate activity. Moreover, the higher budgetary allocation to infrastructure and construction in the interim budget 2024-25 is expected to sustain demand momentum into FY25.
With the general election scheduled for the first quarter of FY25, the brokerage firm believes that the cement demand is expected to experience volatility due to disruptions caused by election-related activities. However, demand is anticipated to gradually recover post-election. Additionally, there is a prevailing expectation that the existing government will secure another term, leading to the continuation of infrastructure-related spending, which will further drive cement demand.
It also noted that both domestic and international petroleum coke and coal prices have witnessed a significant decrease of 25-30 per cent on a year-on-year basis. The average power/fuel consumption prices for most cement companies are anticipated to range between $150-160 per tonne, a decline from the $170-$180 per tonne range in Q3FY24. The positive impact of the low-cost inventory is expected to be reflected in Q4FY24, it said.
Lastly, the moderation in cement prices observed in Q4FY24 has introduced pricing headwinds, with prices correcting to the levels seen in Q2FY24 on average. Axis Securities estimates that realizations for our coverage companies may moderate by 4%-5% during the quarter. Channel checks indicate that cement manufacturers are considering price hikes in April 2024, ahead of the onset of the monsoon season.
"The sustainability of these higher prices will be a key factor to monitor. The addition of new capacities is anticipated to exert pressure on cement prices, contributing to their volatility. The positive impact of higher prices is expected to be more pronounced in Q1FY25, contingent upon their sustainability," it added.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.