The cement sector's challenges may ease as demand recovers, costs decline, prices stabilise and industry consolidation progresses, according to as brokerage firm UBS. This optimism comes as prices have bottomed out, declining 8%.
Ambuja Cements Ltd. remains the research firm top pick. UBS upgraded to “buy,” with the target raised to Rs 620. It also upgraded UltraTech Cement Ltd. to “buy” from “neutral,” setting a price target of Rs 13,000, citing strong execution despite challenging conditions.
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"Our fears over oversupply due to Ambuja's aggressive organic expansion have receded too, as Ambuja relied heavily on mergers and acquisitions, aiding sector consolidation," the note said.
UBS also upgraded Dalmia Bharat Ltd. to “buy” from “sell,” with a price target of Rs 2,100. It maintained a “buy” rating on ACC Ltd., citing supportive valuations and industry trends, with a target price of Rs 2,250.
The research firm expects structural factors to reduce costs in the sector, including a shift to renewable energy, waste heat recovery systems, lower freight costs due to rising rail use, mergers reducing lead time, and improved logistics.
UBS projects that the top two cement makers will expand their market share from 33% in the financial year ending March 2024 to 44% in the financial year ending March 2030, while the top four firms will increase their share from 48% to 61%.
UBS, which previously had a negative outlook on the sector due to an election-year demand slowdown and price hikes, said these risks have now played out. It expects a sector recovery despite potential risks from a shift in government policy towards populist spending and a possible slowdown in the real estate cycle.
Disclaimer: Ambuja Cements and ACC are owned by Adani Group and NDTV Profit is a subsidiary of AMG Media Networks Limited, an Adani Group Company.
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