Up to 26% upside! 4 cement stocks to buy post GST cut

The Goods and Services Tax (GST) Council’s decision to slash GST on cement from 28 per cent to 18 per cent, effective September 22, is set to bring structural relief to the industry, said JM Financial Institutional Securities.

Among stock recommendations, JM Financial maintained a ‘Buy’ on Ambuja Cements (TP Rs 675), Birla Corporation (TP Rs 1,650), JK Cement (TP Rs 7,700) and UltraTech Cement (TP Rs 14,150), implying up to 26 per cent upside from current levels. While assigning a ‘Hold’ rating to ACC, Dalmia, Ramco Cements, Shree Cement and Star Cement.

“The reduction in GST to 18 per cent is expected to lower cement prices by Rs 25–30/bag,” JM Financial said in its sector update. While the benefit will need to be passed on to customers in the near term, the brokerage believes the move is “structurally positive over the medium to long term, supported by gradually improving demand and the industry’s ability to sustain price hikes.”

JM Financial noted that near-term demand elasticity will remain limited as dealers are likely to maintain lean inventories ahead of the revised rate implementation. However, over the medium term, the lower tax rate is expected to support housing demand.

JM Financial also said that the industry’s working capital position will improve, especially in non-trade sales, which account for nearly 25–30 per cent of volumes. The change is expected to free up liquidity across channel partners.

On the cost side, the hike in GST on coal from 5 per cent to 18 per cent is seen as neutral, since input tax credit can be fully offset against GST liability. Importantly, the removal of the clean energy cess of Rs 400 per tonne is “a positive, particularly for players in East and Central India with higher coal reliance.” At an industry level, this translates into a benefit of Rs 5–10 per tonne, the brokerage said.

JM Financial cautioned that GST rationalisation may weigh on incentive income. JM Financial expects state GST (SGST) incentive income to decline by 30–35 per cent, which could imply an EBITDA impact of 2–4 per cent (equivalent to Rs 20–40 per tonne or Rs 1–2 per bag) for companies currently availing these benefits. “Clusters with higher dependence on incentives (such as Central India) could start witnessing relatively lower price volatility as the reduction in SGST benefits narrows pricing flexibility,” it said.