Ambuja Cements, ACC, UltraTech Gain on Hopes of Demand Recovery

Cement stocks gained on Monday on hopes of a revival in the construction activities after the gross domestic product (GDP) of India grew at 5.7 per cent in the April-June quarter of FY15.

UltraTech Cement gained 2 per cent to Rs 2,724 whereas ACC, Ambuja Cements and Grasim Industries were up between 1.5 -3 per cent each.

The core sector index, which measures output of eight infrastructure industries, rose 2.7 per cent in the month of July, 2014. Although the growth was significantly lower than the growth reported in the month of June, but individual sectors like coal, cement and electricity reported strong growth in the month of July.

Production in the cement sector grew at 16.5 per cent year-on year in the month of July suggesting a revival in construction activities. This growth was fastest in last 32 months.

Asia Pacific focused brokerage CLSA recently said in a note that worst is behind for the cement industry and green shoots of recovery seen in the sector. It expects strong recovery in the sector after 7 years of contraction.

Grasim Industries, ACC, UltraTech Cement and Shree Cements are the top pick of CLSA in the cement sector.

The infrastructures focus of the Narendra Modi government is also likely to bring a quicker demand recovery in the cement sector. The Modi government has promised to build 100 new smart cities.

Most of the big players in the cement industries like UltraTech Cements, Grasim Industries and ACC are running with capacity under-utilisation. If demand picks up in the industries then these big producers are likely to benefit more as it will result in better utilisation and higher earnings per share for these companies.