Shares of cement companies have made considerable gains during the last few trading sessions on the expectation of the profitability remaining intact despite the cost rise.
Ambuja Cement and JK Lakshmi Cement were up 4 per cent and 8 per cent respectively. Shares of UltraTech Cement, ACC, Orient Cement, India Cements, Shree Cement, and JK Cement were up between 2 per cent and 6 per cent in the intraday trading session today on the BSE.
"While year-on-year as well as quarter-on-quarter comparison in Q1 FY22E is not meaningful given the varying degree of lockdown/restrictions due to Covid, the industry is expected to post ~45% year-on-year growth in volumes with almost stable Ebitda/te year-on-year on a reported basis," ICICI Securities said in result preview.
It further said that consensus earnings are yet again likely to be upgraded given better-than-expected prices sustaining till date in seasonally weak monsoon necessitated by cost escalations.
The brokerage house noted that west and south regions are likely to lead volume growth on a YoY basis on a low base which was severely impacted by covid last year. Similarly, non-trade demand is likely to be better on a YoY basis led by higher infrastructure demand.
"Our coverage universe FY22-23E EBITDA is 8-10% ahead of consensus. Shree Cement & Ultratech Cement remain our top picks. We also like Ambuja Cements, JK Cement, and the Ramco Cements," the brokerage firm added.
Emkay Global expects a sustainable demand recovery in volumes in coming quarters on the back of gradual relaxations in lockdowns, expectations of construction activities gaining momentum post-monsoon, the low base of the last two years, government focus on infrastructure spends, and a strong June 2021 exit.
"On an month-on-month (MoM) basis, volumes likely grew >20% MoM in the North region, in high-teens in the East and South regions and low double digits in the West and Central regions," it noted
"Average pan-India prices rose marginally MoM (flat YoY) in Jun'21. Prices were likely up 6% QoQ (broadly flat YoY) in Q1FY22, which should largely mitigate the impact of various cost escalations during this quarter, in our view," it added.
Meanwhile, JP Morgan has downgraded Shree Cement and UltraTech Cement but remains 'overweight' on ACC and Grasim. The brokerage firm noted that cost inflation, sharply higher stock prices call for a breather in a strong demand cycle.
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