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The Indian cement industry is hopeful of greener pastures after a long period of stress led by pricing pressures and other factors.
The second half of FY25 is expected to bring respite due to price hikes, cost benefits and higher volumes, said analysts.
The optimistic momentum also makes cement stocks attractive, analysts added, advising to buy dips following a period of bearish sentiment in these stocks.
“Cement is a cyclical industry, and stock prices mimic the industry performance.
"Considering the underperformance of most players barring a few in the current year, I believe it's the right time to enter the pack in a selected manner,” said Uttam Kumar Srimal, senior research analyst, cement and infra, at Axis Securities.
Shares of cement firms have dipped up to 23 per cent in the last one month on the NSE, compared to a 1.2 per cent rise in the benchmark Nifty50.
Burnpur Cement fell 23.3 per cent, ACC dipped by 10.8 per cent, while Shree Cement and Udaipur Cement Works slipped by 10.5 per cent and 9.5 per cent, respectively in the last four weeks.
Others such as Shree Digvijay Cement, Ambuja Cements, JK Lakshmi Cement, Barak Valley Cements and Sanghi Industries dropped between 5-8 per cent during this period.
Election period, extended heatwave conditions, labour shortage and early onset of monsoons in some regions impacted cement demand in recent quarters, domestic brokerages said.
Earnings disappointment in Q1
In April-June quarter of FY25, the cement sector saw an average 2 per cent year-on-year (Y-o-Y) drop in revenues, led by 6.3 per cent Y-o-Y decline in blended realisations, said brokerage firm ShareKhan in a recent report.
The report also noted that operating profits and net profits of cement firms declined by 4.8 per cent and 12.7 per cent Y-o-Y, respectively.
Ebitda have also been under stress. In the December quarter of FY24, the Ebitda per tonne was at Rs 1,000. In the March quarter of FY24, it was Rs 822.
And in Q1FY25, it was Rs 701, said Manish Valecha, lead cement & construction analyst at Anand Rathi Institutional Equities.
“Ebitda per tonne is at the lowest in the last 3-4 quarters, so I believe on the earnings front it has bottomed out, with limited downside expected from here on,” Valecha said.
Turnaround in sight
As cement companies are maintaining their expansion plans due to strong demand outlook, analysts anticipate a positive shift for the industry in the coming months.
“Recent checks show two positives: rising demand and upcoming price hikes of Rs 15-20.
"Also, petcoke prices have fallen from $130 to $105-106 per tonne, which is likely to have a positive impact on Q2FY25 results.
"These trends suggest a sector turnaround, especially with the construction season boosting demand from October to May,” said Valecha.
However, most experts expect earnings growth to accelerate from Q3FY25, driven by increased government spending to meet the Union Budget targets.
Srimal noted that while cement players have recently raised prices or are expected to do so, their sustainability is uncertain.
He expects earnings to remain under pressure in Q2FY25 due to weak demand and stressed prices, but anticipates a reversal starting Q3FY25.
“Overall, due to volume losses in the first half of FY25, industry growth is expected to be lower than that of FY24.
"However, long-term demand remains promising, supported by sustained government capex targets and a strong real estate sector,” said Nishant Bagrecha, research analyst at InCred Equities.
Against this backdrop, Bagrecha advises buying major players like Ultratech and Ambuja Cements on dips due to their strong positions and cost-saving measures.
Srimal recommends Ultratech and Ambuja for large caps, JK Cement and Dalmia Bharat for midcaps, and Star Cement for smallcaps.
Meanwhile, Valecha favours Sagar Cement, Birla Corp, and JK Cement, highlighting midcap cement stocks as attractive due to ongoing sector consolidation.
