UltraTech, ACC, Ambuja, Orient Cement share prices surge up to 14%: Should you buy, sell or hold cement stocks?

Stock market today: Shares of UltraTech Cement, Ambuja Cements, ACC, Orient Cement, Ramco Cements gained up to 14% on Monday. Shares of Shree Cements, Dalmia Bharat and some others also gained up to 2%.

Cement stocks remain in focus on increasing capacity and ongoing consolidation in the industry. Cement demand also remains robust and volume growth expectations are also strong. Consolidation in the industry is likely to support market share growth.

Due to all this, the shares of UltraTech Cement, Ambuja Cements, ACC, Shri Cements, India Cements have increased by 15-55% in the last one year.

Although the long-term prospects remain strong, there may be some challenges in the near term. One reason for this is the pressure on cement prices in the industry.

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Cement prices have started to decline in June 2024. Channel checks by Jefferies India Ltd show that average cement prices declined 1-1.5% month-on-month in June, ending the quarter on a lower note. Average cement prices are down 2-2.5% sequentially in the first quarter, according to Jefferies

This could put pressure on margins and earnings, although cement makers may look to benefit from operating leverage given targeted volume growth in a seasonally strong quarter. Demand remains strong in the months of April and May due to a pick-up in construction activity.

Analysts at Jefferies India Pvt Ltd said in their report that industry volume growth improved year-on-year in May-June after a weak performance in April. The volume boom is likely to remain at a high level.

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Analysts believe manufacturers have not taken an aggressive stance on pricing to gain market share and volumes.

As we move forward, the monsoon season will set in, which means there will be less chance of price improvement, as construction activities will be impacted by the rains.

Analysts believe that the price hike could happen only by the end of the September quarter.

Jefferies said dealers suggest that the monsoon is likely to limit price hikes for the next 2 months. Weak prices and sequentially negligible volume operating leverage could impact margins in the first quarter, partially offset by soft variable costs and the company's cost saving initiatives.

Analysts at Systematics Shares & Stocks, while releasing the fourth quarter results a few days ago, said that prices have fallen by 5% across India since March and demand is expected to fall by 15-20% from the fourth quarter of FY 2024. They said that due to elections, extreme heat and upcoming monsoon, prices are unlikely to increase in the next two quarters.

Analysts at Prabhudas Lilladher, according to their monthly channel check in June, also said there is no expectation of an immediate price hike as demand still remains sluggish and construction activity is expected to remain subdued due to the upcoming monsoon. They expect demand to improve gradually after the monsoon and thereafter price hikes will be announced by companies in the second half of FY25.

Thus, while there is a need to remain cautious on the near-term trend, the long-term outlook is strong. Most analysts believe that the cement industry will see a rapid recovery despite the short-term slowdown and upcoming price pressures. This recovery will be driven by strong demand in the infrastructure, housing and commercial sectors, benign input prices, increasing emphasis on modernization, system efficiency and cost savings.

Disclaimer: The views and recommendations expressed above are those of individual analysts or broking companies and not that of Mint. We advise investors to check with certified experts before making any investment decisions.

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