Cement Stocks Outlook for the week – 04 to 08.04.2016
RBI
review to guide stocks; UltraTech seen up
( www.rupeedesk.in )
Stocks
of cement manufacturers are expected to be guided by the Reserve Bank of
India's monetary
policy
review on Tuesday. UltraTech Cement's shares are expected to continue to rise
next week,
following
its board approving a pact to buy capacity of 21.20 mln tn a year from
Jaiprakash Associates at an enterprise value of 159 bln rupees. Jaiprakash
Associates plans to cut its debt with the proceeds of the sale. Yesterday,
stocks of the company ended up 10.4% at 8.50 rupees on the National Stock exchange.
Acquisition of Jaiprakash Associates' capacity will augur well for UltraTech in
terms of gaining market shares, enhancing growth and saving capital costs.
After
the deal, UltraTech will become the fourth-largest cement player globally, by
capacity. From a
long-term
perspective, the deal is expected to be earnings-accretive for the company, led
by synergy
benefits.
Further, with this deal, UltraTech will have presence across various regions
(except the
Northeast,)
enabling it to reap the benefits of a demand recovery led by higher government
spending
on
infrastructure and a revival in housing demand. With industry-leading growth,
following consistent capacity addition, higher margins and healthy cash flows,
the brokerage house maintains its positive view.
Economic
developments since the February policy review strengthen the case for monetary
easing.
The
central government has exhibited fiscal prudence by sticking to the 3.5% fiscal
deficit target for
2015-16
(Apr-Mar), something the RBI has pitched for. Cement stocks are likely to gain
if interest
rates are cut, as
cheaper borrowing is expected to boost industrial activity.