Emkay Global Financial Services conducted a channel check to gauge the cement volumes/price estimates for the month of August and has also recommended 5-stocks as a buy in its recent report on the cement report.
Announcement of cement price hike
As per Emkay's view, cement companies have announced a price hike of Rs 15-25 per bag in the South and Rs10-15 per bag month on month in other regions in September 21 in order to arrest any further price decline. The price hike is expected to be absorbed in the second half with a demand recovery and rising utilization levels.
"In Q2FY22 till date, average pan-India prices have likely declined 3% QoQ. Prices have declined 1-2% QoQ in the North and Central markets, 3% in the West and 4-6% in the South and East regions. Historically, cement prices correct seasonally by 2- 3% QoQ in the second quarter of the financial year," the brokerage has said.
Margins under pressure in near term; likely to bounce back in H2
According to Emkay Global, the input cost inflation and seasonal correction in cement prices should keep margins under pressure in the near term. However, margins are likely to bounce back with demand/price recovery in H2FY22. Emkay Global maintains a positive view on the cement sector based on robust earnings compounding and a structural RoIC reset, with medium-term demand growth visibility and calibrated supply additions. Their top picks are Ultratech, Shree Cement, and Ambuja Cement.
Industry margins are likely to contract Quarter on Quarter in Q2FY22E, while EBITDA/ton may fall >10% Quartet On Quarter due to the seasonal price correction and cost headwinds. Average domestic petcoke prices have risen 55% YoY/21% quarter on quarter and average diesel prices have gained 23% YoY/7% QoQ. With an increase in international coal prices, companies are driving the fuel mix in favor of domestic coal and AFR usage.
Recent movement in cement price
The channel check conducted suggest that average pan-India prices declined 3% month on month in August 2021. The moderation in prices was primarily led by a 6% month on month decline in the East, while prices in other regions fell in the range of 2-3% month on month in August 21. On a year on year basis, prices were broadly flat in the North, West and Central regions, but they dropped 2-3% in the East and South regions.
Stocks to buy from Emkay Global from the cement space
|Company name||Current market price||Target price|
|Ultratech Cement||Rs 7956||Rs 8500|
|Shree Cement||Rs 30,423||Rs 31,200|
|Ambuja||Rs 437||Rs 445|
|Dalmia||Rs 2269||Rs 2,470|
|ACC||Rs 2,469||Rs 2,580|
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