ICICI Securities has recommended UltraTech Cement (UTCEM), Ambuja Cement (ACEM), and Shree Cement (SRCM) as its top stock picks to buy from the cement sector, as demand seems to be improving in Mar'22. According to the brokerage "As per our channel checks, demand seems to be improving in Mar'22 and may see >17-18% MoM and low-single digit YoY growth after having declined marginally YoY for the past three months. Industry may post highest-ever volumes in Mar'22 (~38mnte) with 91% utilisation despite high base of Mar'21, in our view. We believe Q1FY23E may see stronger 10-15% YoY demand growth aided by low-base of Q1FY22 impacted by second covid wave."
ICICI Securities has noted that "While average pan-India prices are up 5% YoY in Q4FY22, they would still likely fall short of sharp cost increases YoY. Besides, current average fuel prices (which would impact in Q1FY23) are still ~30% higher than Q3FY22 fuel consumption rate necessitating further ~Rs40/bag (10%) QoQ price hike in Q1FY23E which remains a key trigger for the sector. UTCEM, ACEM and SRCM remain our top picks. We also like JKCE and TRCL. Key risks: Lower demand / prices and sharp costs escalations."
"In our view, 1. cost increases have been sharp to the extent of ~Rs450/te (12-13% YoY) in FY22 due to doubling of average fuel prices YoY and sharp diesel and other cost increases. 2. demand in East and Central regions was impacted in H2CY21 due to unseasonal rains, unavailability of sand etc not allowing sufficient price hikes in those regions, and 3. Average South prices remained broadly flat YoY for full FY22 as prices were already hiked by 15% YoY in FY21," the brokerage claims.
"1. Demand may improve (as seen in Mar'22) owing to higher government spend on infrastructure and housing (especially in last two years before general elections). 2. Cost increases may be transient - fuel price increases have mostly been reversed over 4-6 quarters historically (2011, 2014, 2019); and 3. price increases are usually more durable and sustainable. Sharp price increase of ~Rs40/bag in Apr'22 to mitigate cost escalations cannot be negated, in our view," ICICI Securities has highlighted.
As per ICICI Securitiess "While rising input costs pose downside risks to our / consensus earnings, risk-reward is turning favourable (post up to ~25% stock price correction over the past four months), in our view. Mar'22 volumes likely improving; Q4FY22 may see lower 1-2% YoY decline vs 4- 5% decline expected earlier. Except East, all other regions are likely to see YoY growth in Mar'22. South is likely to post low double-digit YoY growth in Q4FY22. Hence, Q4FY22 industry volumes may see marginal fall YoY (vs 4% YoY decline seen during Q3FY22) and may grow 17-18% QoQ (vs historical average of 12-13% QoQ)."
Cement Stock Picks By ICICI Securities
|Sr No.||Stocks||Rating||Target price in Rs|
|5||Dalmia Bharat Ltd||ADD||2,025|
|9||India Cements Ltd||SELL||157|
|10||JK Lakshmi Cement||BUY||700|
|11||Orient Cement Ltd||ADD||191|
|12||Prism Johnson Ltd||ADD||151|
|13||HeidelbergCement India Ltd||ADD||228|
|14||Grasim Industries Ltd||ADD||1,732|
|Source: ICICI Securities|