Once the monsoon season and price pressures subside, is it worth buying cement stocks?

The Indian cement industry is hoping for a turnaround after a long period of stress due to pricing pressures and other factors.

Photo: Anindito Mukherjee/Reuters

Analysts say the second half of fiscal 2025 should see some respite on the back of price increases, cost benefits and higher volumes.

Analysts add that the optimistic stance makes cement stocks attractive and recommend buying the stocks during downturns after a period of falling market sentiment in these stocks.

“The cement industry is cyclical and stock prices reflect industry performance.

“Given the poor performance of most players, barring a few, this year, I believe it is the right time to enter the market in a select manner,” said Uttam Kumar Srimal, senior research analyst, cement and infrastructure, Axis Securities.

Cement stocks have fallen 23 per cent in the past month on the NSE, while the Nifty50 index has risen 1.2 per cent.

Shares of Burnpur Cement have fallen 23.3 per cent, ACC 10.8 per cent, while shares of Shree Cement and Udaipur Cement Works have fallen 10.5 per cent and 9.5 per cent, respectively, in the last four weeks.

Shares of other companies like Shree Digvijay Cement, Ambuja Cements, JK Lakshmi Cement, Barak Valley Cements and Sanghi Industries fell by 5-8 per cent during the period.

According to domestic brokers, cement demand in recent quarters has been affected by factors including election season, prolonged heatwave, labour shortage and early onset of monsoon in some regions.

Q1 earnings disappointment

As reported by brokerage firm ShareKhan in its recent report, in the April-June quarter of FY25, the cement sector recorded an average year-on-year (YoY) decline in revenues of 2 per cent, driven mainly by a 6.3 per cent YoY decline in combined realisations.

The report also noted that cement companies’ operating profit and net profit fell by 4.8 percent and 12.7 percent year-on-year, respectively.

EBITDA was also under pressure. In the December quarter of FY24, EBITDA per tonne was Rs 1,000. In the March quarter of FY24, it was Rs 822.

The figure stood at Rs 701 crore in the first quarter of FY25, said Manish Valecha, principal analyst, cement and construction, Anand Rathi Institutional Equities.

“EBITDA per tonne is the lowest in 3-4 quarters, so I think earnings-wise it has bottomed out and limited declines are expected from here,” Valecha said.

Turnaround in sight

As cement companies continue with expansion plans due to forecasts of strong demand, analysts predict positive changes for the industry in the coming months.

“Recent checks have shown two positives: growing demand and upcoming price hikes of Rs 15-20 crore.

“In addition, petcoke prices have fallen from $130 to $105-106 per tonne, which is likely to have a positive impact on Q2 FY25 results.

“These trends suggest an improvement in the sector, especially given the construction season, which boosts demand from October to May,” Valecha said.

However, most experts expect revenue growth to accelerate from the third quarter of fiscal 2025, driven by increased government spending to meet state budget targets.

Srimal noted that while cement producers have recently raised prices or are expecting to do so, the sustainability of their actions is uncertain.

It expects earnings to remain under pressure in the second quarter of fiscal 2025 due to weak demand and high prices, but predicts a reversal of this trend in the third quarter of fiscal 2025.

“Overall, due to volume losses in the first half of FY2025, industry growth is expected to be lower than in FY2024.

“However, long-term demand remains promising, supported by steady government investment targets and a strong real estate sector,” said Nishant Bagrecha, research analyst at InCred Equities.

Against this backdrop, Bagrecha advises buying shares of big players such as Ultratech and Ambuja Cements during periods of falling prices, given their strong positioning and cost-cutting measures.

Srimal recommends Ultratech and Ambuja for large caps, JK Cement and Dalmia Bharat for mid caps and Star Cement for small caps.

Meanwhile, Valecha favours Sagar Cement, Birla Corp and JK Cement, highlighting the attractiveness of mid-cap cement stocks due to ongoing consolidation in the sector.