In Q1FY24, cement volume grew, driven by better demand from both trade and nontrade segments, and analysts at Axis Securities remain positive as demand drivers are intact. The brokerage expects cement demand to grow at a CAGR of 9% over FY23-FY25E. Despite companies adding capacities, it believes that cement demand will outpace the cement supply but pricing may remain under pressure.
According to Axis Securities, short-term monitorables for the cement sector include Volume Pressure due to monsoon impact & weak rural demand, Margin Pressure due to lower realization. In the medium term, the sector may see strong demand after Monsoon; Better housing, infra and Rural demand, Higher realization, and Fuel inflation easing off gradually.
Axis Securities has Ultratech Cement stock as one of its top picks in the sector with a target price of Rs 9,520. In Q1FY24, the company reported robust capacity utilization of 89%, indicating robust cement demand in the country and market share gains for the company. Its organic capacity expansion plan is progressing well. Total grinding capacity will increase to 165 mtpa in FY25E-FY26E from the current 135.1 mtpa, contributing to volume growth, the brokerage noted.
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Analysts at Axis Securities believe that higher blend share, increase in premium product sales along with weakening commodity prices and increased green energy consumption will lead to higher EBITDA margins for Ultratech Cement. They expect the company to grow its Volume, Revenue, EBITDA, and APAT at a CAGR of 12%, 12%, 26%, and 40% respectively during FY23-FY25E.
Axis Securities has JK Cement stock as one of its top sectoral picks with a target price of Rs 3,560. The company recently expanded its gray cement capacity by 4 mtpa in the demand-accretive central India region, resulting in positive EBITDA at 75% capacity utilization. Upon completion of the ongoing capacity expansion (gray cement), total capacity would increase to 24.2 mtpa. This is expected to drive the company’s volume growth in FY24. The brokerage expects the company to post volume growth of 13% CAGR in FY23-25E.
According to analysts at Axis Securities, JK Cement's electricity and fuel costs are expected to fall by Rs 250-Rs 275 on a per tonne basis in FY24. Additionally, new units' operating expenses are expected to normalize as utilization further improves in FY24, which will drive the company's EBITDA margins. "We expect the company to report an EBITDA/tonne of 1060, up 31%YoY. This will be driven by higher volumes, stable realizations and lower costs," they said.
Axis Securities has Birla Corporation stock as one of its top cement sector stock picks with a target price of Rs 1,400. The company’s volume growth was 12% in Q1FY24 and the brokerage expects the growth momentum to continue in FY24E. The company is working to further improve Mukutban's capacity utilization and realization. "We expect the company to post volume growth of 10% CAGR in FY22-25E," it said.
According to analysts at Axis Securities, the moderation in fuel prices, increasing contribution from WHRS and AFRs, higher sales of blended and premium products from the Mukutban unit and other cost savings from internal efficiencies are expected to drive Birla Corporation's EBITDA/tonne of the company. "We estimate the improvement in EBITDA/tonne in the range of Rs 250-Rs 300 in FY24E," they said.
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