India is the world’s second-largest cement producer, accounting for more than 8 percent of global installed capacity. The cement industry in India reached 3.64 billion tonnes in 2022 and is anticipated to reach 4.83 billion tonnes by 2028, with a CAGR of 4.94 percent during 2023 and 2028.
Analysts at Bernstein brokerage have downgraded three major cement stocks by up to 14 percent, indicating limited improvements in margins and lower target prices.
The brokerage downgraded Shree Cement to ‘underperform’ and reduced its target price from Rs 23,187 per share to Rs 22,341, implying a potential 14 percent drop from Wednesday’s close. Ambuja Cement was downgraded to ‘neutral,’ with the target price reduced by 9 percent from Rs 466 to Rs 424 per share.
It also downgraded Ultratech Cement to ‘neutral’ and decreased the target price by 3 percent from Rs 8,565 to Rs 8,256, reflecting a potential fall of more than 2 percent from Wednesday’s closing.
Here are the reasons to downgrade the cement stocks from brokerage
● Cement companies have seen an increase in input costs as imported coal prices have risen up roughly 15 percent in the last three months, as a consequence brokerage anticipates margins to shrink.
● Bernstein expects a 4-8 percent reduction in the earnings before interest, taxes, depreciation, and amortization (EBITDA) per tonne in the cement sector, with the majority of the good news already announced.
● The brokerage does not expect any additional re-rating from present levels, considering little opportunity for improvement in EBITDA per tonne over the next two quarters.
Shree Cement shares were trading 0.92 percent lower at Rs 26,347 apiece on Thursday, followed by Ultratech Cement, which fell 1.18 percent to Rs 8358 apiece, and Ambuja Cement, which was trading 0.50 percent lower at Rs 426 apiece.
Written by Omkar Chitnis
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