Factories shut, but will strong balance sheets help the cement industry? Top picks

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Published: April 10, 2020 5:29:56 PM

During a time when factories have been shut, supply-chains disrupted and demand reaching to near zero, the cement industry’s strong balance sheets, owing to steady prices, have placed the cement stocks at a comfortable spot.

EBITDA is expected to grow for some while decline marginally for some, despite sales and production being pulled down significantly during the month of March.

During a time when factories have been shut, supply-chains disrupted and demand reaching to near zero, the cement industry’s strong balance sheets, owing to steady prices, have placed the cement stocks in a comfortable spot. EBITDA is expected to grow for some while decline marginally for some, despite sales and production being pulled down significantly during the month of March. Three brokerage and equity research firms have zeroed in on a few cement stocks, separately, that hold the potential to grow with a strong financials and proven track record for growth. ICICI Securities, Emkay Global and Centrum Broking have each pointed out the potential that these stocks hold and their ability to deliver gains.

ACC

Although there is a consensus among the brokerage firms that sales are expected to fall on-year basis for ACC, realisations of the company are being pegged to increase 1.8% on-year basis. However it is the valuation that is drawing investors closer to ACC, having fallen 30% since the beginning of the year. ACC recorded a profit of Rs 269 crore in December 2019, a jump from Rs 238 crore recorded in the March 2019, making its books stronger.

Target Price: Rs 1,287 (Emkay) | Rs 1,520 (ICICI Securities) | Rs 1255 (Centrum)

UltraTech Cement

According to estimates by Emaky Global, net sales for UltraTech Cement might jump 2.3% on-quarter to over Rs 10,000 crore; increasing profits after tax by close to 3%.The same expectation in more or less mirrored by Centrum Broking and ICICI Securities as well, both the broking firms have chosen UltraTech Cement as their top pick among the cement stocks. Centrum broking believes that the company’s presence across the country is likely to help it in minimising the impact of coronavirus.

Target Price: Rs 3,801 (Emkay) | Rs 5,450 (ICICI Securities) | Rs 4,031 (Centrum)

JK Cement

Owing to its higher presence in the north and west region, JK Cement is expected to post a 4-10% realisation on-year basis. According to Centrum Broking, JK Cement is expected to benefit with EBITDA per metric tonne of cement touching Rs 1,300. ICICI Securities expects an improvement in profitability for JK Cement with EBITDA jumping 18% on-year, while Emkay Global is pinning EBITDA growth at 57%.

Target Price: Rs 1,125 (Emkay) | Rs 1,650 (ICICI Securities) | Rs 1,010(Centrum)

JK Lakshmi Cement

Realisation is expected to jump aiding the decline in volumes. EBITDA, according to estimates by ICICI Securities will increase to Rs 782 crore in financial year 2019-20 from Rs 456 crore in the financial year 2018-19. 

Target Price: Rs 254 (Emkay) | Rs 425 (ICICI Securities)

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