Axis Securities on Monday shared its three top conviction ideas from the cement segment due to higher price realisations and demand pick-up. The domestic brokerage assigned 'Buy' calls for UltraTech Cement Ltd, JK Cements Ltd and Ambuja Cements Ltd with a potential upside of up to 29 per cent.
Axis said UltraTech's capacity expansion plan is progressing well. "With the expanded capacity and increasing scale, we expect the company to consolidate its market leadership position further and increase its market share from the current 25 per cent to 28 per cent. We anticipate the company will grow its volume at an 11 per cent CAGR over FY24-27E. It expects a cost reduction of Rs 200-300 per tonne in the next 2-3 years. We project that the company's EBITDA margin will increase to 22 per cent in FY27E, driven by higher volume, better realisations, and cost optimisation initiatives," the brokerage stated.
Based on the third-quarter (Q3 FY25) results, it has given a target of Rs 13,510, suggesting a likely uptick of 17.56 per cent from today's closing of Rs 11,491.60.
For JK Cements, Axis said, "The company delivered a strong operating performance during the quarter, driven by higher realisations and positive operating leverage, resulting in a 54 per cent QoQ (quarter-on-quarter) improvement in EBITDA per tonne, reaching Rs 1,000. This positive trend is expected to continue in Q4 FY25, supported by robust cement demand and better realisations."
It projected the company to grow its volume, revenue, EBITDA, and APAT at a CAGR of 12 per cent, 10 per cent, 25 per cent, and 36 per cent, respectively, over FY24-FY27E. Axis said JK Cements shares may climb 12.10 per cent to hit an upside target of Rs 5,380 from existing levels of Rs 4,799.15.
The brokerage proposed the maximum thrust in shares of Adani Group-led Ambuja. It has given a target of Rs 655, up 29.31 per cent from Monday's closing level of Rs 506.55.
"Business initiatives are expected to further lower operating costs by reducing the clinker factor and logistics costs, improving the sale of blended cement, and expanding the EBITDA margin. We forecast the company's EBITDA margins to improve to 18 per cent-19 per cent in FY26E. Strong infrastructure demand and ongoing needs from the housing and commercial sectors are anticipated to boost cement demand in H2 FY25. Strategic investments in roads, railways, and urban and commercial amenities are poised to drive robust growth. The company expects demand for the industry during FY25 to grow in the range of 4-5 per cent," the broking house stated.
Sharing the outlook for the cement sector, Axis said, "We remain positive as long-term demand drivers are intact and expect cement demand to grow at a CAGR of 7 per cent-8 per cent over FY24-27E. Sector consolidation is expected to benefit large players through economies of scale, supply chain efficiency, and better pricing in the long term. Despite ongoing capacity additions, we believe long-term cement demand will outpace supply."