2 Adani Stocks, Ultratech, Birla Corp Attractive Bets As Cement Prices Dip; Buy For These Target Prices

Brokerage Emkay Global's channel check indicates that pan-India average cement prices witnessed a ~3% dip in December 2023 on account of weak demand due to elections in selected states, rains in the Southern region, and cold weather in certain parts of India. While fuel prices have tumbled by 7-8% in the said month. This is likely to improve the profitability of cement companies and hence giants like Ambuja Cements, ACC, Ultratech Cement, and Birla Corporation are attractive bets in the sector. The brokerage has recommended buying these stocks.

Data from Emkay highlighted that average cement prices have plunged by 3% on a month-on-month basis in December 2023. The drop was seen across regions with the East witnessing a decline of Rs10-15/bag, Rs5/bag in the West, and Rs8-10/bag in other regions.

However, Emkay's research report also added, "Despite the decline in prices in the past couple of months, pan-Indian average cement prices are still up 2.5-3% (Rs10-12/bag) sequentially in Q3FY24. However, exit prices are broadly similar to Sep-23 levels. Our checks suggest that the industry may attempt a price hike (Rs10-30/bag) in Jan-24; however, absorption will be known over the next few days."

Meanwhile, demand momentum has also been tepid in December 2023, with volumes likely to remain flat or decline in low single digits YoY/up in high single digits month-on-month.

According to the brokerage, in the case of volumes, elections in Rajasthan, and cold weather have impacted demand in the North; state elections in Telangana and heavy rains in Tamil Nadu have kept demand lower in the South, while weak rural demand, especially in Bihar and Jharkhand markets, is impacting demand in the East.

Also, it added, "Increased dispatches from the Adani Group from the recently acquired Sanghi Industries will be the key monitorable in the West region over the next few months. We estimate industry demand has likely grown in mid to high single digits YoY in Q3FY24; while it is likely to have improved by 10-11% YoY in 9MFY24. With Q4 being seasonally the strongest quarter, we expect demand momentum to improve in the coming months."

Furthermore, the brokerage pointed out that US pet-coke prices on Dec-23 declined 7-8% MoM to USD120/ton (down 30% YoY) owing to a downturn in the coal market and lower demand, led by the Christmas holidays. Spot fuel prices are 5-6% lower than average prices in Q3FY24.

That being said, Emkay's report lastly added, "With better realization, higher operating leverage and partial relief in input cost, we expect profitability to improve by >Rs150/ton QoQ in Q3FY24."

Hence, Emkay has selected four cement stocks to buy and two of them belong to Adani Group.

1. Ambuja Cement: (Target Price Of Rs 580, CMP: Rs 520.95, Potential Upside: 11.33%). Ambuja shares ended the year 2023 with a marginal drop of 1%.

2. ACC: (Target Price: Rs 2,600, CMP: Rs 2208.90, Potential Upside: 17.7%). Unlike its parent Ambuja, ACC shares faced more selling in 2023 as the stock ended the year with a 9.5% drop on BSE broadly.

Both Ambuja and ACC are under conglomerate Adani Group's wings, making the port-to-power empire the second largest cement player in India after Ultratech Cement.

3. Ultratech Cement: (Target Price: Rs 11,400, CMP: Rs 10,503.15, Potential Upside: 8.54%). Unlike its peers Ambuja and ACC, Ultratech shares have rallied by nearly 50% on BSE in the year 2023 overall. The stock even touched a new 52-week high of Rs 10,522.65 apiece on the last trading day of 2023 (December 29, 2023).

4. Birla Corporation: (Target Price: Rs 1,800, CMP: Rs 1,441.50. Potential Upside: 24.9%). Birla shares also had a bullish 2023 with gains of nearly 47% on BSE.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.