The Economic Times daily newspaper is available online now.

    Cement companies' stocks rally on bullish outlook

    Synopsis

    The brokerages expect the demand for cement to rise further, given that many infrastructure projects are yet to take off.

    ET Bureau
    MUMBAI: Shares of cement companies such as Grasim, Ambuja Cement and ACC rallied on Tuesday as global brokerage houses like CLSA and Goldman Sachs turned bullish on the sector after July’s production numbers rose 16.5% year-on-year (yoy), the strongest in the past 32 months.

    The brokerages expect the demand for cement to rise further, given that many infrastructure projects are yet to take off. "We believe that the worst is behind for the cement industry which is on course for a strong recovery after seven years of contraction in the utilisation rate. Our top picks are Grasim, UltraTech, ACC and Shree Cement," said Vivek Maheshwari, analyst at CLSA.

    The July IIP data indicates that Indian cement production grew at 16.5% yoy to 21.8 million tonnes, driven by a delayed monsoon that helped consumption growth, and a low base as production growth was just 0.8% during July last year.

    Among the leading cement companies, Grasim rose 3.82% to Rs 3,607 on Tuesday, Ambuja Cement gained 3.65% to Rs 216, while ACC rallied 3.63% to Rs 1,553, whereas BSE Sensex closed up 0.57%, or 151 points, at 27,019 points.

    Goldman Sachs estimates 8% cement demand growth for FY15 and 11% annual com-pounded growth in demand for the next four years. "Grasim is our top pick with a price target of Rs 4,950, as we expect an upturn in the cement cycle given the strong demand outlook. We also prefer Shree Cement and have a price target of Rs 9,600, and UltraTech with a 12-month price target of Rs 2,810," said Navin Gupta, analyst at Goldman Sachs.

    CLSA said cement production for April-July grew 11% yoy, which is also the strongest in the past five years. But there’s been a dip in construction in August, with rains gathering momentum.

    The brokerage house, however, believes that cement demand led by the infrastructure sector is going to pick up in the coming months.

    "We see further scope for rerating in cement stocks as the sector has entered a structural recovery cycle marked by rising demand and price momentum," said Mihir Jhaveri, analyst at Religare.

    However, Rashesh Shah, analyst at ICICI Securities, said large-cap stocks like Ambuja, UltraTech and Shree Cement have reached their fair valuations after a sharp rally in the past three months due to favourable election results.

    While in the mid-cap space, stocks such as JK Cement and JK Lakshmi Cement have the potential for further upside, since in terms of valuations they are trading around 12-14 times to their forward earnings.



    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more


    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
    The Economic Times

    Stories you might be interested in