Cement stocks to watch before Budget: UltraTech, ACC, Ambuja, Dalmia Bharat, Shree Cement

Shares of cement stocks such as UltraTech Cement, ACC, Ambuja Cement, Dalmia Bharat, Shree Cement will be in focus ahead of the interim budget to be announced on February 1. All these stocks have surged between 20-40 percent over the last one year

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Shares of Cement stocks such as UltraTech Cement, ACC, Ambuja Cement, Dalmia Bharat and Shree Cement will be in focus ahead of the interim Budget to be announced on February 1. All these stocks have surged between 20-40 percent over the last one year.

Cement demand surged post-COVID recovery, driven by government spending and housing revival, leading to higher sales and prices in FY2024. Margins are set to rise as input costs have fallen for both the December quarter and the full year, analysts said.

For the year ahead, cement firms are expecting a combination of strong demand and benign input costs to drive profitability. Analysts are pencilling in a 300-350 bps expansion in operating margins to 16.5-18.5 percent as prices of two key raw materials — pet coke and coal — have cooled down significantly.

At the same time, there are concerns about potential oversupply, given the industry’s capacity addition of 119 mtpa in the last five years, reaching 595 mtpa. Another 150-160 mtpa is expected in the next five years, of which 35-40 mt will be in this fiscal itself.

Continued government emphasis on infrastructure and housing incentives in the Interim Budget could have a multiplier effect, particularly on cement. Analysts stress that the impact relies heavily on demand from affordable housing, which exhibited a soft trend in the past two to three quarters.

“Amidst robust infrastructure development, we anticipate strong cement demand, spurred by budget increases in housing, roads, railways, and rural projects, and further boosted by initiatives like PMA,” said Arun Shukla, President and Director, JK Lakshmi Cement.

Cement makers are hoping that the government will take steps to address rising input costs through lower GST rates and easing import duties on key materials like coal and petcoke.

Budget expectations

Stakeholders eagerly await the FY25 target for government capital spending, a key driver of economic growth. PM Modi, at the Vibrant Gujarat Global Summit, outlined a vision for robust infrastructure growth, signaling potential policies and incentives in the Interim Budget 2024. Analysts suggest these measures could spur substantial development in the infrastructure sector.

Recently, Moneycontrol reported a Ministry request for a Rs 3.25 lakh crore budgetary allocation for FY 2024-25, a 25 percent YoY increase, aiming to reduce market borrowings for the National Highways Authority of India. In the FY24 budget, the finance minister allocated Rs 10 lakh crore for infrastructure capital expenditure, a 33 percent increase. The industry expects heightened government focus on safety and timely infrastructure upgrades.

Analysts anticipate a potential boost in budget allocations for housing and infrastructure projects, constituting over 80 percent of India’s cement demand. Schemes targeting rural economic revival are expected to drive demand for rural housing. Key points to watch include changes in freight rates and announcements regarding new freight corridors.

“We look forward to witnessing measures aligning with India’s growth trajectory, particularly in infrastructure development and affordable housing. An emphasis on maintaining competitive prices for raw materials and energy sources will significantly boost the Indian cement sector. We also remain hopeful of receiving sustained support through fiscal incentives and streamlined freight mechanisms, essential for thrusting the cement industry forward. Additionally, a user-friendly and incentivised renewable energy policy will play a critical role in fostering sustainable growth”, said Jayakumar Krishnaswamy, Managing Director, Nuvoco Vistas Corp.

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