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KRChoksey Research Report
Despite the near term headwinds in the sector, we remain optimistic about the long term growth of the sector; given the size of opportunity in the infrastructure space, along with an expected pick up in housing activities and rural demand.
We expect cement companies to take price hikes in Q3 FY24, which might lead to an improvement in profitability as well as realisations. Owing to strong demand outlook and decline in inflationary pressures, we remain positive on the sector.
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The commentary from major players are on a positive stance and they expect sequential recovery going ahead.
We believe that despite the market outperformance in last few months the cement stocks have not performed well, so we anticipate that sector is headed towards a rerating.
Our top picks in the sector are Ultratech Cement Ltd. and Ramco Cements Ltd. These companies exhibit strong fundamentals, resilience, and the potential for future growth, making them attractive choices for investment.
UltraTech Cement
Ultratech Cement Ltd. revenue is expected to grow by 30% YoY and 1.82% on a sequential basis. The company is expected to outperform its peers owing to strong geographical presence, healthy demand and focus on infrastructure activities.
Ebitda is expected to witness robust growth of 79.96% YoY and 10.17% QoQ. Whereas, the profit after tax is expected to increase by 162.25% YoY and 17.42% sequentially. Management expects that Ebitda per tonne will improve going ahead due to various cost cutting initiatives, decline in pet coke prices, reduction in lead distance and by improving operating efficiencies.
The Ebitda margin and PAT margin are expected to see improvement of 141 basis points and 146 bps respectively on a sequential basis.
Ramco Cements
The Ramco Cement Ltd. is expected to witness growth of 21.90% on a YoY basis and a decline of 2.67% on a sequential basis. The decline is mainly attributed to seasonality effect, However long term outlook for the company remains positive owing to strong government focus on infra and housing construction.
We believe the company Ebitda levels to surge by 85.10% YoY and 1.46% QoQ. The profit after tax is expected to increase by 12.11% on a sequential basis. We anticipate that Ebitda per tonne will witness increase on a sequential basis owing to decline in inflationary pressure, hike in price per bag in south region and increase of green power consumption.
Ebitda margin is expected to expand by 543 bps YoY and 65 bps QoQ. Whereas profit after tax margin is also expected to see improvement of 359 bps YoY and 50 bps sequentially led by improving utilisations levels and operating efficiency.
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