In a notable market development, cement stocks witnessed a significant upswing of up to 5% on Wednesday, following an upgrade by the Japanese broking firm Nomura. The upgrade, coupled with increased target prices, was based on robust sales volume growth anticipated in FY25.
Nomura’s recent assessments led to the upgrading of Ultratech to a buy rating from neutral, setting a target price of Rs 11,500. Similarly, Dalmia Bharat’s target was revised to Rs 2,900, and Ramco Cement’s to Rs 1,250. While maintaining a buy rating on Shree Cement, Nomura raised the target price to Rs 33,400 from Rs 27,800.
The positive sentiment reflected in the market as Ultratech shares surged by 3.5%, reaching a 52-week high of Rs 10,379.70 on the BSE. Dalmia Bharat stock rose by 3% to Rs 2,301.70, and The Ramco Cements observed a 5% increase to Rs 1,037.45. Shree Cement was also trading approximately 1% higher.
Nomura’s outlook considers the robust performance of India’s cement industry in the first half of FY24, marked by a remarkable 17% YoY growth in volume. Looking ahead to FY25, the brokerage foresees a moderation in cement demand due to the typical slowdown in new infrastructure project launches during a general election year. Despite this, Nomura predicts sustained demand, surpassing the 10-year CAGR of 4%, driven by the central government’s infrastructure focus, stable rural and affordable housing demand, and increased urban housing initiatives.
Analyzing past election cycles, Nomura notes that cement trade prices tend to remain relatively flat in pre-election years. However, current trends have seen a 2% YoY decline in trade prices, attributed to a higher base effect following the industry’s strong pricing performance in FY23. Nomura anticipates an average Rs 200-250 per tonne unitary EBITDA improvement in Q3, even in the face of potential fuel cost escalations.
The broking firm has reduced ratings on Adani-owned cement stocks – ACC and Ambuja Cements.