ICICI Securities, a domestic brokerage firm, has highlighted UltraTech Cement, Ambuja Cements, and Shree Cement as top picks from the cement sector. The brokerage has said "Demand recovery in Mar'22 and low base of Q1FY22 (impacted by second covid wave) may result in strong 10-15% YoY growth during Q1FY23E which augurs well for absorption of price hikes, in our view. UltraTech Cement (UTCEM), Ambuja Cements (ACEM) and Shree Cement (SRCM) remain our top picks. We also like JK Cement (JKCE) and Ramco Cement (TRCL)."
ICICI Securities has said in a note that "Industry likely to post highest-ever volumes of ~40mnte in Mar'22 with ~25% MoM and high single digit YoY growth. Our channel check suggests South and West regions have likely grown in mid-teens YoY led by strong growth in Tamil Nadu / Kerala and Gujarat. North / Central regions likely saw mid-single digit YoY growth led by demand recovery in Uttar Pradesh post elections. Accordingly, industry volumes are expected to be broadly flat YoY during Q4FY22 (vs consensus expectations of 4-5% YoY decline) and up ~8% YoY in FY22 on a low base."
According to the brokerage "Imported coal prices and domestic pet coke prices are up by ~50% (>Rs400/te impact) over the past two months owing to unfavourable geo-political scenario, while retail diesel prices rose 10% from mid-Mar'22. Accordingly, variable costs are expected to remain elevated in H1FY23. While companies have announced sharp price increases of up to Rs50/bag across regions to mitigate these cost escalations, investors would seek more comfort as and when these costs correct to more 'normalised' levels, in our view. These sharp fuel cost increases are usually transient and correct over 4-6 quarters as seen in the past during 2008-09, 2011-12, 2014, while price increases have remained more stable."
The brokerage has also highlighted that "Companies have announced price hike of Rs15-20/bag in North, Central and West regions, while higher Rs50/bag hike has been announced in South and East regions in Apr'22. Average pan-India prices rose by 2% MoM in Mar'22 led by ~Rs10/bag MoM hike in North, Central and East regions. Overall, average pan-India prices are likely to be up 1-2% QoQ and 5-6% YoY during Q4FY22 with Mar'22 exit prices being higher by 2- 3% vs Q4FY22 average. While risk-reward is more favourable (post 20-30% stock price correction over the past four months) in medium term, spread between price hikes and cost increases would drive near-term stock performance, in our view."
Top Cement Stock Picks By ICICI Securities
|Sr No.||Stocks||Rating||Target Price In Rs|
|9||India Cements (ICEM)||SELL||157|
|10||JK Lakshmi Cement||BUY||700|
|12||Prism Johnson Ltd||ADD||151|
|13||Heidelberg Cement India||ADD||228|
|Source: I-Sec research. Data as of April 4, 2022|
Lower demand / prices and higher cost escalations are the key risks for the above stocks as per the brokerage.