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Informist, Friday, Feb. 14, 2025

MUMBAI – Improved growth in demand and volumes are expected to be key catalysts for future earnings growth of cement companies, based on which their share prices could move higher, analysts said. The key push will come from the government's likely higher capital expenditure in the remainder of the financial year ending Mar. 31 after the sluggish trend seen in Apr-Nov. However, the 10% increase in the Budget estimate for the financial year 2025-26 (Apr-Mar) over the revised estimate for FY25 was lower than expected. There were also concerns about whether the government would be able to meet this target.

Currently, demand growth is higher than supply, but if supply exceeds demand, it can exert pressure on realisations, Vincent K. Andrews, a fundamental equity research analyst at Geojit Financial Services, said. Speaking about the earnings of cement companies in the December quarter, Andrews said realisations improved sequentially, though they declined on year. The fall in realisations weighed on operating margins, but the impact was partially offset by lower fuel prices, he said. Fuel prices were flat sequentially, but fell on year. Companies are also taking steps to increase green power capacity, which will bring their costs down, he added.

The valuations of some companies have already been upgraded owing to the improvement in outlooks for demand and realisation, Andrews said, but this may not be sustained if realisations do not improve. For the long term, the takeover of smaller players by larger ones is good for pricing stability, but there may be some disruption in the short term as companies figure out how to increase utilisation and volumes with the newly added capacity, he said.

Nuvama Institutional Equities sees cement demand improving in the March quarter and industry volumes growing 7-8%, it said in a research report Thursday. With the elections over, cement demand will get a boost as supply should increase going ahead, the brokerage said. On the pricing front, Nuvama believes the worst is over, and the industry's focus will shift to volumes over pricing in Feb-Mar to end FY25 on a respectable level. However, increasing competition and focus on volumes led the brokerage to maintain a neutral stance on the sector. J.K. Cement remains a top pick of Nuvama. 

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Following are the resistance and support levels for the sector's key stocks for next week, as per calculations based on their prices on the National Stock Exchange:

End

Reported by Noopur Bhandiwad
Edited by Rajeev Pai

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