Top Picks: Emkay suggests 5 cement stocks to buy

The research analyst of Emkay, Dharmesh Shah said “Post gradual price hikes for the past three months, average Pan-India cement price is likely to have declined by 1% MoM (~Rs4/bag) in Dec-22. Prices declined by ~2% MoM in East and South India, while remaining broadly flat in other regions. In Q3FY23, all-India average cement prices increased by 2-2.5% YoY and QoQ, with a 5-7% price improvement in the southern and eastern regions. Prices in the North and West are likely to have stayed flat QoQ, while possibly declining by ~2% QoQ in the central region.”

He further added that “Industry volumes likely flat-to-marginally positive YoY and MoM, in Dec-22. Volumes in Oct-22 were impacted by the festival season. However, they picked up pace in Nov-22 and are expected to have increased by 7-8% YoY in Q3FY23, led by a favorable base and the strong infra push by the government. We expect demand momentum to improve, with a busy construction season and as pre-election spending kicks in. Volume growth will be 10-11% YoY in 9MFY23, in our view.”

“Cement companies attempting price hikes of Rs10-20/bag across regions, in Jan23. Absorption of the price hikes will unravel over the next few days. Besides, we expect demand to further pick up (from mid-Jan ’23) after Kharmas (considered an inauspicious period in India), which should bode well for pricing. We expect industry-profitability to bottom out in Q2 and increase by ~Rs200/ton QoQ (even higher for eastern players) in Q3FY23, with higher cement prices, along with peaking-out of the operating cost in Q2FY23. Note, international petcoke prices corrected by >35% from their peak (in Apr-22), at US$172/ton,” claimed the analyst.

Top cement stocks to buy

The brokerage said “Our medium-term upcycle thesis remains largely intact, albeit with a more gradual reset in profitability (RoIC), underpinned by improving demand-supply dynamics, better price discipline, cost optimization, and de-risking efforts. Key downside risks: 1) Lowerthan-expected demand growth; and 2) any negative outcome from the CCI investigations.”

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.