Motilal Oswal Top Picks From Cement Sector: Buy, Sell, Neutral Call To 11 Stocks

Leading brokerage firm Motilal Oswal has initiated coverage on stocks from cement sector. These stocks are Ultra Tech Cement, Shree Cements, Ambuja Cements, ACC Ltd, Dalmia Bharat, The Ramco Cements Ltd, JK Cement, Birla Corporation Ltd, India Cements, JK Lakshmi Cement, and Grasim Industries.

The analyst has assigned buy, neutral, and sell call to these stocks. Motilal Oswal has picked Ultra Tech Cement as the top pick in large cap space. Meanwhile, the analyst prefers Dalmia Bharat and JK Cement in mid cap space. Check details below:

Name of the company	Rating
Ultra Tech Cement	Buy
Shree Cements	Neutral
Ambuja Cements	Neutral
ACC Ltd	Neutral
Dalmia Bharat	Buy
The Ramco Cements Ltd	Neutral
JK Cement	Buy
Birla Corporation Ltd	Buy
India Cements	Sell
JK Lakshmi Cement	Buy
Grasim Industries	Buy

1. Strong Volumes Improve Clinker Utilization

According to Motilal Oswal, "After an initial hiccup in demand during early 3QFY23; we believe cement demand recovered strongly over the quarter. We estimate 10% YoY volume growth in 3QFY23 (three-year CAGR at 5.4%), aided by strong infrastructure and real estate demand as well as the low base effect of last year (sales volumes dipped 2.6% YoY in 3QFY22). We expect 12% YoY volume growth for our coverage universe in 9MFY23 and estimate 4% YoY volume growth in 4Q, thus translating into a volume growth of 10% YoY for FY23. We believe that clinker utilization for our coverage companies has improved to 81% in 3QFY23; up 4.5pp YoY and 5.0pp QoQ.

2. Cement Prices Should Remain Strong In 4Q FY 23E

According to the analyst, "Our analysis indicates that improvement in 4QFY19 clinker utilization led to strong pricing power for the industry (pan-India average cement prices rose 11.7% QoQ in 1QFY20). We note that clinker utilization remained/to remain strong during 4Q of FY21-22/FY23E, respectively, (4QFY20 was hit by Covid-19 as restrictions were imposed in Mar'20). Over the last few years, we have seen better pricing power in Mar-Apr leading to improved realization during the Apr Jun quarter (1Q of FY20-23)."

3. Cost Pressures Appear To Be Subsiding

The analyst said, "Cement companies' OPM witnessed a sharp contraction over the past one year due to elevated fuel prices (both petcoke and imported coal). OPM for our coverage universe was at a record low of ~10% in 3QFY23 mainly fueled by ~42% YoY increase in variable cost/t. Average EBITDA/t of our coverage universe, at INR657, was at a 35-quarter low in 2QFY23. Diesel price has remained stable during the past seven months despite crude oil correction of ~35% over this period (with recent correction of ~7%). Hence, we do not expect any increase in diesel price over the near-term."

4. Profits Likely To Improve

Motilal Oswal said, "We remain positive on the cement industry dynamics for the next few years given: a) better demand prospects, led by infrastructure and housing sectors, b) heightened industry consolidation, and 3) regulatory changes in the allotment of limestone blocks. UTCEM is our top pick in the largecap space. We prefer DALBHARA and JKCE in the midcap space."

 

Disclaimer

The stocks have been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.