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Stocks of major cement companies are likely to follow market trend next week in the absence of a sector-specific trigger. Key share indices have been rallying on expectations that the Bharatiya Janata Party will win assembly polls in majority of the five states that went to elections. Counting of votes for Delhi, Chhattisgarh, Madhya Pradesh, and Rajasthan, will be held on Sunday, while result for Mizoram is scheduled for Monday. The demand scenario is a little unclear at the moment, while there has been some upward movement in prices. Cement companies announced price hike of 10-25 rupees per bag across regions in the first and second week of November. These hikes come after prices were increase in last week of September and then reversed in October.
The rise in prices was brought on by strong production discipline rather than improvement in demand. However, given the lack of any triggers for re-rating in the near term, it is advisable to remain very selective. We prefer UltraTech due to its strong balance sheet, pan-India presence, and recent correction in its stock price. Slower consumption growth, sustenance of a large surplus, and low consolidation would restrict any meaningful recovery in pricing power for cement manufacturers in the medium term. The cement sector is currently running on 100 mln tn of excess capacity. However, low-cost cement producers, with a strong focus on logistic efficiencies and a low share of vintage plants are likely to emerge as winners.
Stocks of major cement companies are likely to follow market trend next week in the absence of a sector-specific trigger. Key share indices have been rallying on expectations that the Bharatiya Janata Party will win assembly polls in majority of the five states that went to elections. Counting of votes for Delhi, Chhattisgarh, Madhya Pradesh, and Rajasthan, will be held on Sunday, while result for Mizoram is scheduled for Monday. The demand scenario is a little unclear at the moment, while there has been some upward movement in prices. Cement companies announced price hike of 10-25 rupees per bag across regions in the first and second week of November. These hikes come after prices were increase in last week of September and then reversed in October.
The rise in prices was brought on by strong production discipline rather than improvement in demand. However, given the lack of any triggers for re-rating in the near term, it is advisable to remain very selective. We prefer UltraTech due to its strong balance sheet, pan-India presence, and recent correction in its stock price. Slower consumption growth, sustenance of a large surplus, and low consolidation would restrict any meaningful recovery in pricing power for cement manufacturers in the medium term. The cement sector is currently running on 100 mln tn of excess capacity. However, low-cost cement producers, with a strong focus on logistic efficiencies and a low share of vintage plants are likely to emerge as winners.
