Cement companies stocks were in focus amid rising coal and pet coke prices, which are key raw materials for the cement industry. Domestic research and brokerage firm Motilal Oswal Financial Services has cut the target prices of cement stocks by 5-17 per cent. The firm noted that at present, imported coal prices are significantly higher than their peak in Oct’21. Petcoke prices too have started to rise. Reliance Industries Ltd (RIL) raised petcoke prices to Rs 17,980/t for Mar’22 (up 24% from Feb ’22 levels).
Apart from higher coal/petcoke prices, the recent increase in crude prices/ocean freight rates may further put pressure on operating cost for the industry, analysts at the research firm said. They also added that higher crude prices may lead to a rise in diesel price, which will lead to higher freight costs. Sanjeev Kumar Singh, research analyst, Motilal Oswal Financial Services, in a report said that in the current volatile pricing scenario for imported coal and changes in the global geopolitical scenario (Russia-Ukraine standoff), it has become difficult to analyze the earnings impact on Cement companies.
Though Cement demand is expected to recover post the ongoing state elections, a significant price rise becomes difficult to sustain at once (as a ramp-up in Birla Corporation and Dalmia Bharat’s plants is yet to happen in Maharashtra). “UltraTech Cement is our top pick in the sector, followed by Dalmia Bharat in the large cap space. Birla Corporation is our preferred pick in the midcap space,” it said. Motilal Oswal expects companies with stronger balance sheets to perform better than leveraged companies (The Ramco Cement, Birla Corporation, and India Cements have a net debt/EBITDA ratio of over 3x among our coverage companies). Shree Cement, ACC, and Ambuja Cements are cash surplus companies.
Motilal Oswal has adjusted target prices of cement companies stocks to factor in changes to its earnings estimates. There is no change in ratings for companies in its Cement universe. It has rejigged its price target for Grasim Industries to factor in a revision in UltraTech Cement. The brokerage firm has maintained buy rating to UltraTech Cement, ACC, Dalmia Bharat, The Ramco Cement, Birla Corporation, and JK Lakshmi Cement. The research firm has a ‘neutral’ rating to Shree Cement, Ambuja Cements, JK Cement, and India Cement.