Cement Stocks Outlook for the week – 25 to 29.05.2015

Cement Stocks Outlook for the week – 25 to 29.05.2015

 Seen tracking broader market next week

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Cement stocks are seen taking cues from the broader market next week in absence of any major sector-specific trigger. Cement stocks will perform in the way the (broader market) rally is behaving. If the market is going up by 5%, cement stocks will not be able to outperform the broader index. Cement stocks are expected to see recovery in a broader way only after August in anticipation of demand picking up. Demand has not picked up in the current quarter and with the onset of monsoon, a recovery is ruled out.

People will start lapping up cement stocks from August onwards. A long- term sustainable rally will be seen in cement stocks only after August. It will be a range bound trade till August. In large cap cement companies, range will be in terms of enterprise value per tn which is $130 to $160 per tn. Mid cap cement players will continue to trade in the range of $65 to $75 per tn.

The Ramco Cements Ltd and India cements Ltd will detail their earnings on May 29. Stocks of The Ramco Cements and India Cements are likely to perform better next week based on the strong realisation reported by Sagar Cements Ltd yesterday. Sagar Cements reported Jan-Mar net profit at 216.9 mln rupees and net sales at 1.9 bln rupees. Short-term trend outlook for cement stocks is positive while medium trend is negative.

Cement Stocks Outlook for the week – 04 to 08.05.2015

Cement Stocks Outlook for the week – 04 to 08.05.2015

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Stocks of major cement companies are likely to continue with the downward trend next week on account of weak demand and low prices of the building material. Any major near-term triggers for the sector are unlikely.

The dampened market sentiment during the past few weeks is likely to weigh heavily on cement stocks. Share indices in general are expected to tread lower next week amid absence of any positive fundamental triggers, and lack of clarity on whether foreign institutional investors will have to pay minimum alternate tax for earlier transactions.

Retrospective taxation fears and weak corporate earnings will continue to weigh heavily on the market, while the introduction of key policy bills such as the Goods and Services Tax will be keenly watched. Demand for cement has been weak and is likely to remain so for the next two-three quarters.

Cement stocks are unlikely to move up in short-term. Demand for cement is very sluggish, prices are not recovering. Market is also weak. It will take around one to two quarters for the shares to do well. We prefer shares of Ultratech Cement thanks to abiding investor interest. "Decline in UltraTech Cement stocks will not be as much as in ACC and Ambuja Cements.

Cement stocks have been under selling pressure for the past few weeks and the short-term outlook for them is negative, as they have so far underperformed the broader indices.

Cement Stocks Outlook for the week – 13 to 17.04.2015

Cement Stocks Outlook for the week – 13 to 17.04.2015

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Stocks of major cement companies are seen trading with a positive bias next week due to

expectations of strong demand for the product in the coming months with a pickup in infrastructure projects.

Overall, the outlook for cement stocks is good though there is some pressure in near term on these shares. Stocks of cement companies in southern India are better because of improvement in cement demand and pricing there.

In north, cement prices are still volatile, although they have improved recently. Demand for cement still needs to improve there. Some movement may be seen in cement stocks with major cement maker ACC ltd detailing their Jan-Mar earnings next week.

ACC Ltd's earnings are slated to come on Apr 14. We expect movement in its stocks with the

results. While we cut earnings estimates for most of the companies under coverage to factor in weak demand and pricing, we remain positive on the sector on expectations of demand revival and utilization up-tick.

Cement Stocks Outlook for the Week – 06 to 10.04.2015

Cement Stocks Outlook for the Week – 06 to 10.04.2015

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Stocks of frontline cement companies are seen trading with a positive bias next week after correction during the last couple of weeks. After correction, there is a positive bias. Cement stocks are expected to go higher next week on account of improvement in demand for cement. After Holi, cement prices have firmed up on recovery of demand in north India. The government's announcement to invest in infrastructure projects has also stimulated demand for cement.

We prefer Stocks of UltraTech Cement because of its capacity and volume growth. Among all the cement companies, Ultratech Ltd has grown in terms of profits, capacity and volume.

The Competition Commission of India last week Wednesday has approved Holcim-Lafarge merger deal with some modifications.

In India, Holcim owns ACC Ltd and Ambuja Cements, the stocks of which are seen up next week on the news. Cement stocks are likely to be impacted by Jan-Mar earnings, as well some cement companies may detail their earnings next week.

Cement Stocks Outlook for the week - 23 to 27.03.2015

Cement Stocks Outlook for the week - 23 to 27.03.2015

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Stocks of major cement companies are expected to remain under pressure next week in absence of any immediate positive sector-specific trigger. Fundamentals of the sector still remain weak.

The sector is yet to witness volume growth due to lack of demand from the infrastructure sector.

With no new big-ticket infrastructure projects proposed by the government and the private

sector, the demand for cement remained subdued in the last few months.

We do not expect any improvement in the cement stocks next week. We do not see any trigger unless the cement prices get increased during the week across all the regions.

Cement stocks will remain under pressure. Cement prices pan-India are weak excluding South India. Fourth quarter has been down in terms of demand and prices compared with the same period of previous years.

Acceleration of the investment cycle, which is essential for higher demand growth, and

sustenance of robust pricing is yet to materialise. Government's strong emphasis on infrastructure projects augurs positively for a gradual revival of demand cycle. We continue to prefer players with strong volume levers, efficient operations and healthy balance sheet (or deleveraging visibility). We like UltraTech among large caps, and JK Lakshmi, Dalmia Bharat and JK Cement among mid caps.

The Street is unlikely to react to the news of Holcim and Lafarge renewing terms of their merger.

The companies have redrawn the terms of their proposed merger, with shareholders of Lafarge getting 0.9 shares of Holcim for every share held. Holcim shareholders will consider the new term on or around May 7 for approval.

Post merger, we see shares of Ambuja Cements gaining more among all the three companies to be merged. ACC Ltd would not gain because of its units likely to be sold in merger process.

Cement Stocks Outlook for the week – 14 to 18.07.2014

Cement Stocks Outlook for the week – 14 to 18.07.2014
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Stocks of major cement companies to follow the trend of the broader market next week in

the absence of a sector-specific trigger and remain range-bound. Jan-Mar earnings of

cement companies are expected to be mixed. Companies with exposure to the north India

market are expected to report improvement in results while south India-based companies

may continue to report a decline in earnings.

The budget has provided the much-needed fillip to infrastructure and housing sectors.

The response has been good, but during the week, focus will largely be on economic data

and earnings of companies for the quarter ended June.

In Jan-Mar, the cement industry is expected to report strong volume growth of around 8%

on-year on account of low base, a delayed monsoon and the lag impact of pre-election

spending. However, cement volume is likely to decline marginally by 1% on-quarter, due

to seasonality.

Firms having a higher presence in north and west India (Shree Cements, JK Cement and

JK Lakshmi Cement) are likely to post strong double-digit volume growth due to robust

demand in key markets. All-India average cement prices are expected to improve by 4%

on-quarter and 3% on-year, due to the full impact of sharp price hikes witnessed in north

and west India during Feb-Mar 2014

Cement Stocks Outlook for the week – 16 to 20.06.2014

Cement Stocks Outlook for the week – 16 to 20.06.2014
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Stocks of major cement companies are expected to follow the broader market next

week in the absence of a sector-specific trigger. The bias though is likely to be slightly

negative with the advent of monsoon rains. Global developments will be key for Indian

share indices as geopolitical tensions in Iraq triggered a selloff across global equities

yesterday. Market players will also take cues from the outcome of US Federal Open

Market Committee's two-day policy meeting on Tuesday and Wednesday. The week will

begin with the release of Wholesale Price Index-based inflation data for May on

Monday.

Cement demand is usually low during monsoon and that will reflect on stocks of cement

companies too. The mood will be low. Although the medium- to long-term demand for

cement as well as earnings of companies look positive ‘a material downside risk to our

estimates’ is the possibility of monsoon rains to be disappointing this year. Prices, too,

are seen remaining subdued during the monsoon season, after a recent hike.

The top three cement manufacturers--UltraTech, ACC and Ambuja—have already raised

product prices in the range of 10-60 rupees per bag. They were followed by small

players. The price hike in southern India, particularly Andhra Pradesh, is high at 50-60

rupees per bag, while the rise was in the range of 10-15 rupees in the rest of the

country.

Cement Stocks Outlook for the week – 09 to 13.Jun.2014

Cement Stocks Outlook for the week – 09 to 13.Jun.2014
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Stocks of major cement companies to trade with a positive bias next week, as prices of

the construction material are seen steady in the short-term, at least before the start of fullfledged

monsoon. In a last bid to gain some price realisation before the usually-lull

monsoon months, cement companies across the country have hiked prices by 10-60

rupees per 50-kg bag.

While the top three cement manufacturers--UltraTech, ACC, and Ambuja--have already

raised product prices, small players may implement the hike gradually in some parts of

the country. The price hike in southern India, particularly Andhra Pradesh, is high at 50-

60 rupees per bag, while the rise was in the range of 10-15 rupees in the rest of the

country.

Market on the whole is on a roll and cement sector stocks will also follow the trend.

There is a general optimism that things have bottomed out and demand will improve on

the back of revived construction and infrastructure sectors. Cement demand has grown at

around 6% annually in the last four years (2010-14), the slowest pace in past two decades

for four consecutive years.

The cement demand has been at a 13-year low at around 4% and is expected to grow at

9% in H2FY15/FY16 (Oct-Mar) on the back of revival in sentiments and unleashing of

pent-up demand against the dismal growth of 6% in FY10-14. Given this backdrop, we

like ACC on the back of attractive valuations and play on improved operations,

UltraTech and Shree cement, driven by strong quality of operations, While in mid caps,

we like Ramco cement and JK Lakshmi cement.

Cement Stocks Outlook for the week - 19 to 23.May.2014

Cement Stocks Outlook for the week - 19 to 23.May.2014
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Stocks of major cement companies will continue to be in the green next week

as the imminent formation of the Bharatiya Janata Party-led government at the

Centre is seen as a positive development for the economy. The movement in

stocks, however, will be range bound as market expects profit-booking to

follow this week's strong rally in the run-up to election results. A stable

government at the Centre was the need of the hour and now that it has been

established, market is optimistic that new infrastructure projects will see a

boost. The BJP-led National Democratic Alliance comfortably cleared the 272-

seat hurdle which represents simple majority or the half-way mark in the 543-

seat Lok Sabha.

This is probably the first time in almost three decades that a single political

party has bagged a simple majority. Although experts do not see an immediate

spurt in cement prices, demand is seen improving over time and, therefore,

volumes are seen improving. "Volume growth will come in the next 3-6

months," said H.M. Bangur, managing director, Shree Cement. Global ratings

agency Fitch said the new government can strengthen investments by a clear

strategy for fiscal consolidation, creating a low-inflation environment and

pushing structural reforms. UltraTech Cement will consolidate as it has run up

sharply.

Cement Stocks Outlook for the week - 05 to 09.May.2014

Cement Stocks Outlook for the week - 05 to 09.May.2014

Stocks of major cement companies to remain rangebound next week, as gains from the

Jan-Mar earnings of ACC, Ambuja Cements and UltraTech Cement have been factored

in and there are no significant triggers on the horizon.

The gains in share prices following the Jan-Mar earning announcements of three big

cement makers have been eroded to some extent by profit booking, but the strong results

have brought positivity about the sector.

However, demand for cement has improved and is seen stable after the general elections

and this would stem loss in the value of these shares even after some profit booking.

Construction activity has picked up in parts of north and west India, the biggest cement

markets, and therefore cement manufacturers' stocks are seen remaining strong in the

medium term.

Cement companies have also been raising product prices, improving their margin, which

has attracted investors to these stocks. Outlook of sustained demand over the medium

term is expected to help retain investor interest in these stocks.

Over the past few sessions, there has been profit booking in cement stocks and they shed

some gains made after strong Jan-Mar earnings by major stocks.

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Cement Stocks Outlook for the week - 17.02.2014 - 21.02.2014

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 Stocks of major cement companies are expected to follow the broader market in the absence of any sector-specific trigger. Even the Interim Budget for 2014-15 on Monday will hardly have any impact on the stock movement of cement companies in particular. The broader market trade will remain rangebound, and any rise will be used to book profits. Being a vote on account, we are not expecting any major steps to be announced. Overall, the government's view on plan expenditure will be in the only thing which market will keep an eye on. The Union government will present vote-on-account for four months on Monday as general elections are due in Apr-May. 

Market participants will look out for numbers such as fiscal deficit, gross domestic product growth, and inflation for the next financial year in the Budget speech. Market has already taken into account earnings of cement companies, which analysts say were mostly in line with expectations. Profitability of cement players was muted in Oct-Dec due to flat volumes and average hike in realisations. Cement stocks have sharply under-performed the broader market over the past three months, reflecting earning downgrades as demand failed to pick up despite a favourable base. The past four quarters have been extremely tough for the sector, with dismal demand exerting pressure on realisations. Though a pick-up in demand was expected post monsoon, prompting price increase, but nothing much has change on the ground as construction activity has not picked pace. 

Lower operating margins led to a sharp decline of 34% year on year in profit after tax for cement companies, adding with a recovery in pricing from January onwards and a favourable base for volumes, profitability is likely to improve in Jan-Mar. 

Cement Stocks Outlook for the week - 10.02.2014 - 14.02.2014

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We expect stocks of major cement companies to trade weak next week. Stocks of Chennai-based India Cements Ltd and Ramco Cements will be in focus as they are scheduled to detail their Oct-Dec earnings on Monday and Wednesday, respectively. India Cements is expected to report a loss of 42 mln rupees for Oct-Dec against a profit of 261 mln rupees a year ago. India cement's net sales is seen 1% lower on year at 10.68 bln rupees. Ramco Cements' Oct-Dec net profit is seen at 324 mln rupees, 61% lower on year, while its net sales is seen down 3% on year at 8.46 bln

rupees. With no pick in demand for cement after monsoon, volumes for major companies are expected to decline by 1-2% on year. Cement prices too have continued to remain under pressure. Freight and fuel costs have increased, though marginally, during the quarter. Though seasonal uptick is expected in Jan-Mar, there is limited visibility of a recovery on a sustainable basis. While demand recovery is expected to be gradual, slowing capacity addition coupled with higher capital expenditure and operational expenditure cost would support cement prices and profitability, going forward. It said recovery in demand would be critical for the company's operating as well as stock performance.

Cement Stocks Outlook for the week - 03.01.2014 - 07.02.2014

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Stocks of major cement companies are seen trading with a negative bias during the week as weak earnings estimates weigh on investor sentiment. Also, cement behemoths ACC Ltd and Ambuja Cements Ltd will be in focus as they are set to detail Oct-Dec earnings on Thursday. Q3 Oct-Dec results are expected to be hit by cost pressures and constrained volumes.
   
According to weak demand persisted during the quarter on account of infrastructure slowdown.     Also, even though manufacturers have started announcing price hikes across select regions, in anticipation of a demand pick-up. With minimal visibility on a demand pick-up, prices may remain under pressure over the near term. We expect a muted show from cement stocks amidst the stretched earnings downgrade cycle.

Cement Stocks Outlook for the week - 27.01.2014 - 31.01.2014

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Cement stocks to remain weak in the coming week, as lower quarterly earnings from cement companies due to low sales realisation amid weak demand will continue to weigh on sentiment. The country's largest cement maker by volume, UltraTech Cement, on Monday posted a higher-than-expected 37.5% year-on-year fall in net profit for Oct-Dec at 3.69 bln rupees, and a mere 1.5% rise in net sales to 47.86 bln rupees.
    
During the quarter, power and fuel costs rose by 2% sequentially, while freight costs is likely to have risen 5% estimated. The Railways had introduced a 'busy-season charge' of 15% on basic rates for all commodities including cement with effect from Oct 1. Also, imported coal prices rose to $85 per tn from $70 per tn in September.

Cement Stocks Outlook for the week - 13.01.2014 - 17.01.2014

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Stocks of major cement manufacturers are expected to trade in the red next week as, with companies set to detail their Oct-Dec earnings, we see another weak quarter on the back of slow pick-up in demand and low volume off-take. Though Oct-Dec was slightly better than the Jul-Sep quarter, on a year-on-year basis, both, reported revenue and profit numbers would be lower. The mood around cement sector stocks will definitely be grim. There has not been much pick-up in demand for cement despite good monsoons. Also, companies have been trying to keep prices high but have not been successful. Therefore, price realisations were low during Oct-Dec. Average all-India cement realization was down 3.5% on year in Oct-Dec and marginally up quarter-on-quarter. Average prices are likely to be up 1-3% on quarter in central, west and south regions, while average prices are expected to be down 1-2% on quarter in north and east. Industry volumes have grown only 3% on year and 7% quarter-on-quarter to 61 mln tn, implying lower utilisations at 71% against 73% year ago, due to sand mining ban in Rajasthan, and Tamil Nadu, cyclones, monsoon in parts of East and South India, and continued political unrest in Andhra Pradesh. As a result, we expect average realization to be down 3.5% YoY and up only 0.5% QoQ to 3,985 rupees per tn. Average EBITDA/tn (earnings before interest, tax, depreciation and amortization) is expected to decline by around 28% YoY/improve 7% QoQ to 630 rupees/tn. With lower than expected volume/pricing uptick in Q3FY14 (Oct-Dec), we cut our FY14-16E EBITDA by 6-10% for companies under our coverage and revise our target prices by rolling over on FY16E.

Cement Stocks Outlook for the week - 06.01.2014 - 10.01.2014

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We expect stocks of major cement companies to be subdued next week, as although the worst is over for the manufacturers, headwinds persist. Although rural demand has picked up, infrastructure spending continues to be a cause for worry. Cement prices are subdued now after rising in the beginning of December. As many companies are keen on keeping prices high, this is not the best time for a price hike. Companies that have come to terms with that have begun concentrating on cost optimisation. Despite the recent recovery in cement prices over the last two months, average cement prices are still marginally down year-on-year. Sales volume too has not picked up materially. Oct-Dec sales volume is expected to rise by a modest 6-7% quarter-on-quarter. Sales volume of all the three large cap companies ACC, Ambuja Cements, and Ultratech Cement would decline 2-3% year-on-year. 

We remain cautious on the sector as demand-supply situation remains fragile. We advise investors to focus on companies with improving operational efficiencies and strong balance sheet which should help absorb the negative impacts of any demand disappointments going forward. Cement stocks have outperformed the markets by around 10% over the past three months. Hence, near-term performance could remain range-bound and closely track cement price movement. We continue to prefer UltraTech Cement and Shree Cement over ACC and Ambuja Cements. 

Cement Stocks Outlook for the week - 30.12.2013 - 03.01.2014

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Stocks of cement companies are expected to follow the broader market in the absence of any sector-specific trigger, and the bias will be positive as the worst seems to be over in terms of demand. The bias for local share indices is seen positive next week after the National Stock Exchange's 50-share Nifty ended at a two-week high yesterday. Though cement consumption has improved especially in rural areas, it is still at a slower pace than expected. While infrastructure investments have clearly slowed down, thereby driving down cement consumption in India, pickup in rural/tier-2 cities' demand can bolster cement demand during FY15-16E (Apr-Mar) on account of the good agricultural output expected in FY14E. 

Investors to focus on companies with improving operational efficiencies and strong balance sheet that should help absorb the negative impacts of any demand disappointments going forward. ACC & Ambuja Cements in the large cap space on account of their continued loss in market share as well as deterioration in their operational efficiencies. UltraTech, Shree Cement and JK Lakshmi Cements which have been industry leaders on the operational fronts. In our view, any dip in stock prices should be used. Explaining that while Ramco has been one of the most efficient cement companies in the southern regions. we would wait for its balance sheet to repair and demand pick-up in the southern region before we would upgrade it.  

Cement Stocks Outlook for the week 23.12.2013 - 27.12.2013

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Stocks of major cement companies are likely to trade with a negative bias next week as demand concerns remain on lack of any real pickup. According to the demand scenario is a bit unclear, affecting the pricing power of cement companies. While there has been some upward movement in prices in November, several similar attempts have had to be rolled back.
    
For long, market has been expecting a turnaround in the demand scenario post the monsoon season and as a countdown to the general elections in mid-2014, but very little has happened on the ground both in housing as well as infrastructure activity. We do not expect macro-recovery theme to play out and see disappointment on expected election spends and good monsoons. Cement producers will have to redraw growth strategy and expansion plans.A declining trajectory of government spending is seen from the earlier levels of around 15% to lower levels of 8-10%, and possibly even lower.

Cement Stocks Outlook for the week - 16.12.2013 - 20.12.2013

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Analysts expect stocks of major cement companies to remain in the negative during the week ahead as demand has not recovered, affecting pricing power of companies. The market will also keep an eye on Reserve Bank of India's monetary policy review to be announced on Wednesday. RBI Governor Raghuram Rajan has said the central bank is very uncomfortable with the current levels of inflation and weak economic growth too is a concern. Data released Thursday showed India's annual inflation rate based on the Consumer Price Index (Combined) rose to an all-time high of 11.24% in November driven by a sharp rise in vegetable prices. Separately, India's industrial output contracted 1.8% in October, slipping to a four-month low as consumption demand continued to slump. Industrial production had grown by 8.4% a year ago and by 2.0% in September.The picture is quite grim. The demand scenario has not improved as much as we would have liked it to, barring in a few states. Companies that are keen to hike prices have not been able to do so due to poor demand. Broadly, cement stocks have outperformed the broader markets by around 10% over the past three months; hence, near-term performance could remain range-bound and closely track cement price movement. After an impressive compounded annual growth rate of 8.6% in cement consumption during 2004-2012, the moderation in demand is moving towards a new normal growth rate of around 6% in 2013-2016. In our view, slower consumption growth, sustenance of a large surplus (55-60mtpa, which is around 23% of demand) and low consolidation (top-2 groups controlling just 30% of capacity) would restrict any meaningful recovery in pricing power for cement manufacturers in the medium term.

Cement Stocks Outlook for the week - 09.12.2013 - 13.012.2013

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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.