Global brokerage Jefferies remains upbeat on the cement sector, expecting a sharp rebound in earnings this quarter despite sluggish demand. According to the brokerage, “We expect cement coverage to post strong 52% YoY growth in EBITDA on better pricing (+5–6% YoY) and a soft base, even as volume growth remains soft at less than 5% YoY.”
Jefferies on Cement sector: Muted demand, firm prices
Jefferies noted that heavy monsoons and early festive sales had kept demand subdued, but pricing held firm. “During Q2, industry pricing was relatively resilient despite heavy monsoons impacting construction activity,” it said.
Prices dipped only about 1–1.5% QoQ, led by a 4% drop in the South, while other regions stayed largely stable.
With fuel costs inching up, Jefferies expects companies to hike prices from November. “Fuel has inched up recently (to impact 4Q), which we believe could push companies to price hikes from Nov/4Q,” it added.
Jefferies on Cement sector: Strong earnings recovery on the horizon
Despite a weak quarter for demand, Jefferies expects a sharp earnings rebound, aided by improved pricing and a favourable base. “We expect aggregate EBITDA for our coverage universe to grow ~52% YoY, on the back of pricing growth and a weak base,” the brokerage said.
However, it expects a mild dip on a sequential basis due to seasonal factors. “We estimate average EBITDA/T to be lower by Rs 200 QoQ at Rs 885, given a seasonally weak monsoon quarter – impacted by a modest price decline QoQ, seasonally higher cost in 2Q (maintenance, employee appraisals, dealer meets) and negative operating leverage,” Jefferies noted.
While petcoke prices have spiked to around $115 per tonne, coal prices have stayed range-bound, offering some relief. The brokerage expects the effect of higher fuel costs to show up in Q4 results.
Jefferies’ top stock picks in Cement sector
Jefferies optimism in the sector is reflected in its top stock picks – UltraTech Cement, Ambuja Cements, and JK Cement.
“Top picks are UltraTech Cement, Ambuja Cements, JK Cement,” the brokerage said, pointing out that these companies are best placed to benefit from stable pricing and strong operational efficiencies.
“On the back of M&A consolidation, volume growth for UltraTech/Ambuja remains among the highest at ~10%/15% YoY,” the report highlighted. Among mid-cap peers, JSW Cement and JK Cement could also deliver healthy growth of 15% and 10% respectively.
Jefferies expects JK Lakshmi Cement, JK Cement, and Shree Cement to post the highest earnings growth of 60–130% YoY, while UltraTech, Ambuja, and JSW Cement are projected to grow between 50–55% YoY.
Jefferies says outlook for Grasim mixed
The brokerage also shared its outlook on Grasim Industries, expecting muted performance in the near term. “We expect Grasim’s standalone EBITDA to remain weak at Rs 300 crore, lower 7% YoY, 21% QoQ,” Jefferies said.
While the company’s VSF segment is likely to see a 4% sequential dip due to weaker pricing, Jefferies expects slight improvement in its new businesses, including paints and B2B e-commerce. “EBITDA losses in new business may also slightly moderate QoQ vs Rs 300 crore loss QoQ,” it added.