Stock corner: Ramco, Birla Corp, Sagar among top picks in Cement sector – Anand Rathi

Published: April 12, 2019 1:14:24 AM

Top picks: Ramco, Birla Corp, Sagar, Heidelberg and Star. Risk: Rising pet-coke prices.

The all-India cement price is anticipated to have averaged Rs 329 a bag in Q4 FY19 (up 2.2% y/y, 1.9% q/q).

By Anandrathi

According to our channel check and dealer feedback,decent Q4 volume growth is suggested across the country. Further, profitability is expected to get better on the increase in cement prices in all regions (largely in the southern region) and due to cost savings on account of lower petcoke and diesel prices.We expect revenue to clock grow 13.8%, EBITDA 22.2% and PAT 28.4% y/y. We prefer some of the Central and southern companies (Heidelberg,Birla Corp, Ramco, Star, Sagar).

The rise in revenue in Q4 FY19 of the cement companies we cover would average 13.8% y/y (19.4% q/q), boosted by a 10.3% y/y increase in cement volumes, shored up by firm demand and a 2.9% y/y increase in average realisation/tonne to Rs 4,670 (Rs 4,529 a year ago, Rs 4,484 the quarter prior). Driven by the recent decline in global petcoke/coal and diesel prices, we expect power &fuel cost and freight to fall, leading to lower production costs, overall.

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For the companies we cover, we expect EBITDA/ton to average Rs 839 (Rs 760 a year ago; Rs 640 the previous quarter).

As suggested by our channel checks, all-India cement prices have increased. An average increase of 2.2% y/y (1.9% q/q) has been seen in all regions,chiefly in the southern region. This resulted in an improving demand-supply scenario.

Being the construction season,we expect a pick-up in government infrastructure activity along witha rise in cement prices. Softening costs, however, might slightly push up profitability.

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Top picks: Ramco, Birla Corp, Sagar, Heidelberg and Star. Risk: Rising pet-coke prices.

The all-India cement price is anticipated to have averaged Rs 329 a bag in Q4 FY19 (up 2.2% y/y, 1.9% q/q). Our channel check reveals prices rose or were flattish across India.The southern region, however, saw the most price rise mainly on a reversal of the steep decline in prices during the year and strong demand growth. This resulted in a better demand-supply scenario.

We believe higher prices in most regions would persist.

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