Exit Polls: ACC, Ambuja, Birla, Other Cement Stocks Rally Ahead Of Madhya Pradesh, Rajasthan Results: Why?

The majority of cement stocks rallied on Friday as traders await assembly election outcomes in the states of Rajasthan and Madhya Pradesh which will be announced on Sunday, December 3. The ruling government matters to cement prices as these elections are expected to have an impact on labour availability and hence demand. Adani Group-backed ACC and Ambuja Cement coupled with Birla Corporation, JK Lakshmi Cement, Prism Johnson, Heidelberg Cement and others were some of the stocks in the green.

On BSE, Adani's ACC and Ambuja Cement shares jumped 1-2%, while Birla Corporation, Prism Johnson and Heidelberg Cement shares zoomed by 4-5%, and that of India Cements surged by over 1%. Shree Cement and The Ramco Cements surges jumped by 1-2%. However, the largest cement stock Ultrateh Cements dipped marginally amidst the development of its deal with Kesoram.

At present, exit polls of these states are being observed. At the moment, the Congress party is aiming to retain its power in Rajasthan and Chhattisgarh, while the BJP is aiming for another term in Madhya Pradesh. While the two large parties have been big contenders for many years in these states, they both together face challenges for victory in Telangana and Mizoram.

Votings in these states have commenced already, and the results will be announced on December 3.

According to Kotak Institutional Equities, all-India prices saw an Rs7/bag or 1.7% mom decline in November 2023 led by the festive season and select state elections impacting labour availability and thus demand.

The brokerage's note said, "Price declines were steepest in the east region (-3.6% mom), partly reversing sharp hike in prices in September 2023. South region saw meaningful hikes in October 2023 after a prolonged pause, but this was partially rolled back in November 2023. Prices in the west remain flat Mom. There was weakness in north and central region prices for November 2023 due to upcoming elections in Madhya Pradesh and Rajasthan, seasonality due to festive season and the harvest season in northern states."

Nevertheless, Kotak's note said, that 2.5%/3.8% mom price hikes in September/October 2023 imply that 3QFY24 should see 4-5% qoq higher prices, an anomaly versus historical trend.

In the case of demand, Kotak's note said, "We expect demand to remain robust in 2HFY24 at +7-8% yoy but at a lower level than 1HFY24 due to state elections and a high base. We estimate 10%/7% yoy demand growth in FY2024/25E outpacing supply addition at 5.4%/5.8%, thereby pushing industry utilization above 70%."

Kotak expects margins to firm up in 2HFY24 for cement companies, led by a combination of higher prices, muted costs and operating leverage due to seasonality.

Furthermore, the brokerage remains constructive on the sector prospects given robust demand, rising utilization and up-trending margins in the medium term. However, rich valuations suggest limited upside. Kotak recommends ADD on Dalmia Bharat and Nuvoco Vistas and SELL on stocks like Ambuja, Ultratech, Shree Cement, JKCenent, and Ramco Cements. It has given a 'REDUCE' view on ACC and Orient Cement.

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.