The recent consolidation in the sector (including the JP Associates-UltraTech deal) would prop up cement prices, they said, adding that the recent Budget announcements may support cement demand in the short term.
That, even though there is no sign yet of the impending super-cycle in the infrastructure space.The cement sector witnessed its last super-cycle between FY2005 and FY2008. Analysts pointed out the period kicked off the de-leveraging process and resulted in strong FCF generation for the cement players.
It was followed by high capacity expansion worth Rs 12,000-14,000 crore annually over FY07-15.
"The capex cycle is likely to end as the top-5 players (60 per cent of capex over FY10-15) have shifted focus from scale to RoCE expansion and smaller players focus on FCF growth to reduce leverage. Sector RoCE/ EBITDA margins are 500/700bps lower than 15-year average. They should mean-revert by FY18 as capital employed stops increasing and margins expand due to efficiency initiatives and discipline-led improvement in pricing," Ambit Capital said in a note to clients.
Motilal Oswal in a note said cement companies in the north and central regions carried out price hikes in multiple tranches since February, with the latest hike in the first week of March.
Over the past 30-40 days, retail prices in the north and central regions have increased by Rs 35-70 a bag from the bottom of January 2016, led by Jodhpur, Delhi and Chandigarh. In the west, prices have increased by Rs 20-25 per bag MoM on improvement in demand in Gujarat and Mumbai. In south, prices have recovered in Andhra Pradesh after dropping in February."If prices do not change further in March, there is no major downside risk to our fourth quarter price assumptions, especially for our preferred north-central picks. Our near-term conviction in our north-central bets (JK Lakshmi Cement, JK Cement and Prism Cement) is intact. UltraTech Cement remains our preferred pick for the cycle," the brokerage said.Since Budget, Saurashtra Cement, KCP, JK Cement and Burnpur Cement have climbed 35 per cent, 27 per cent, 25 per cent and 25 per cent, respectively.
Prism Cement, The India Cements, Mangalam Cement and Shree Cement have surged between 14 per cent and 23 per cent during the same period.
Building materials are possibly one of the best industrial proxies in India and close to 60 epr cent of cement demand comes from housing, said Manishi Raychaudhuri, MD & APac Equity Strategis ..
Over the past 30-40 days, retail prices in the north and central regions have increased by Rs 35-70 a bag from the bottom of January 2016, led by Jodhpur, Delhi and Chandigarh. In the west, prices have increased by Rs 20-25 per bag MoM on improvement in demand in Gujarat and Mumbai. In south, prices have recovered in Andhra Pradesh after dropping in February."If prices do not change further in March, there is no major downside risk to our fourth quarter price assumptions, especially for our preferred north-central picks. Our near-term conviction in our north-central bets (JK Lakshmi Cement, JK Cement and Prism Cement) is intact. UltraTech Cement remains our preferred pick for the cycle," the brokerage said.Since Budget, Saurashtra Cement, KCP, JK Cement and Burnpur Cement have climbed 35 per cent, 27 per cent, 25 per cent and 25 per cent, respectively.
Prism Cement, The India Cements, Mangalam Cement and Shree Cement have surged between 14 per cent and 23 per cent during the same period.
Building materials are possibly one of the best industrial proxies in India and close to 60 epr cent of cement demand comes from housing, said Manishi Raychaudhuri, MD & APac Equity Strategis ..
Large cement players such as Ambija Cements, Ramco Cements, UltraTech Cement and ACC have gained between 1.5 per cent and 9.5 per cent since Budget.
Ambit Capital believes that after five years of zero Ebitda growth, earnings of the sector should recover over FY16-18.
Ambit Capital believes that after five years of zero Ebitda growth, earnings of the sector should recover over FY16-18.
"While volume growth may hover at 6-8 per cent (compared with hopes of 10-12 per cent), pricing stability (6-7 epr cent CAGR) and lower costs (flat to 1-2 per cent growth) will boost earnings growth. We expect 36 per cent CAGR over FY16-18E for our six-covered companies. Consensus estimates suffer from recency bias and display little predictive power; our FY17/FY18 Ebitda estimates are 10-25 per cent higher than those of consensus," the brokerage said.