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India ranks as the world’s second-largest cement producer and contributes over 7% to the global installed capacity. According to the latest report, from FY12 to FY23, India experienced a remarkable 61% growth in its cement capacity, reaching 570 million metric tons from 353 million in FY22. 

Projections indicate that the Indian cement sector is poised to witness a compound annual growth rate (CAGR) of 4-5% by the conclusion of FY27. 

According to the Motilal Oswal Financial Service report suggest that several cement players have increased prices by ₹ 8-10 per bag across regions in June, reflecting around a 2 percent month-on-month spike. Consequently, the all-India average cement price has climbed by about 3 percent month-on-month thus far in June 2024. 

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Motilal Oswal anticipates subdued demand due to the onset of the monsoon season. However, the brokerage firm projects a robust rebound in the second half of FY25, primarily driven by the housing and infrastructure sectors. 

“We anticipate industry volume growth of approximately 5-6 percent year-on-year in the first half of FY25, followed by an 8-9 percent growth in the second half of FY25,” noted Motilal Oswal. 

Furthermore, Brokerage mentioned that Modi 3.0’s announcement of plans to construct an additional 3 crore rural and urban houses under the Pradhan Mantri Awas Yojana (PMAY) is also perceived as a favorable development for the cement sector. 

Looking ahead, Motilal Oswal also foresees an uptick in cement demand momentum, driven by the government’s emphasis on affordable housing, sustained robust demand from the real estate sector, and a probable increase in industrial capital expenditures. 

Motial considers that the announcements made in the upcoming union budget will serve as crucial indicators for the enhancement of cement demand momentum. 

Within the sector, the brokerage has selected UltraTech Cement as its top pick in the large-cap segment, while Dalmia Bharat and JK Lakshmi Cement are its preferred choices in the mid-cap category. 

UltraTech Cement Ltd

On Friday, UltraTech Cement Ltd. shares closed at ₹11,263 per share, an increase of 0.73% on the National Stock Exchange. The company has a market capitalization of ₹ 3,25,174 crores. 

The stock has gained a return of 13 percent in the last six months and 33 percent in the last 12 months. 

UltraTech Cement Ltd’s operational revenue has increased by 9.4 percent yearly, from ₹18,662 crore in Q4FY23 to ₹20,419 crore in Q4FY24. During the same period, net profit rose by 35 percent, from ₹1,670 crore to ₹2,259 crore. 

UltraTech has a consolidated capacity of 138.39 Million Tonnes Per Annum (MTPA) of grey cement. UltraTech has 23 integrated manufacturing units, 28 grinding units, one clinkerisation unit, and 8 Bulk Packaging Terminals. 

JK Lakshmi Cement Ltd 

On Friday, JK Lakshmi Cement Ltd shares closed at ₹825 per share on the National Stock Exchange. The company has a market capitalization of ₹9,707 crore. 

Motilal Oswal has given a buy recommendation on the JK Lakshmi stock with a target price of ₹ 1,000, with an upside of 21% from the current market price. 

Motilal Oswal anticipates EBITDA estimates for FY25 and FY26. The brokerage firm noted that the company is positioned as a cost-efficient player, with a strong presence in favorable regions such as Gujarat and North India. The brokerage valued the stock at 9 times the FY26E EV/EBITDA. 

The company witnessed a 43% year-on-year increase in its EBITDA per ton, reaching ₹1,032, while its operating margin expanded by 6.4 percentage points year-on-year to approximately 19%. Profit after tax also surged by 43% year-on-year to ₹1.6 billion. 

Dalmia Bharat Ltd 

On Friday, Dalmia Bharat Ltd shares closed at ₹1,883.80 per share, a decrease of 0.91% from the previous close price on the National Stock Exchange. The company has a market capitalization of ₹35,330 crores. 

The stock has declined 21 percent in the last six months and declined 12 percent in the last 12 months. 

Dalmia Bharat Ltd’s operational revenue has increased by 10 percent yearly, from ₹3,915 crore in Q4FY23 to ₹4,307 crore in Q4FY24. During the same period, net profit fell by 47 percent, from ₹609 crore to ₹320 crore. 

Dalmia Bharat is engaged in the business of Manufacturing and Selling Cement and it is the 4th largest cement manufacturer by installed capacity in India. 

Motilal Oswal has initiated a ‘buy’ rating on Dalmia Bharat Ltd with a target price of ₹ 2,800 per share, representing an upside potential of up to 48% from the current price. 

The brokerage expresses optimism about the company’s future growth potential, citing its ambitious expansion plans and commitment to efficient execution. By 2031, the company aims to ramp up its capacity to 110-130 million tonnes per annum (MTPA) at a compound annual growth rate (CAGR) ranging between 14% and 17%. 

Motilal Oswal forecasts a compound annual growth rate (CAGR) of 11% in consolidated revenue, 24% in EBITDA, and 34% in profit after tax (PAT) for the fiscal years 2023 to 2026. This growth is expected to be driven by increased sales volume, cost-saving initiatives, and a decrease in the tax rate. 

Written by Omkar Chitnis

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