cement stocks: Govt infra push, falling input costs to boost cement stocks

Cement companies have been able to sustain the price hike for the whole month of January, first time in eight months. Cement prices have risen by 6 per cent year-on-year in January this year and 4 per cent on a month-on-month basis, according to analyst reports. This suggests a demand recovery in the coming months.

Analysts expect prices to sustain until the beginning of the monsoon season. This is because, historically, 40-50 per cent of the capital expenditure by state governments occurs in the March quarter, which will support the price trend till May. In addition, the central government’s plan to spend Rs 102 trillion on infrastructure projects in the next five years augurs well for the sector.

Moreover, raw material prices such as pet coke are 30 per cent cheaper than a year ago. These factors have prompted analysts to upgrade earnings estimates of well-placed cement companies such as UltraTech Cement, Ramco Cements, Shree Cement, and Ambuja Cement by 5-10 per cent for FY20.

The ET Cement index has gained nearly 10 per cent over the past month compared with the 1.5 per cent gain in the benchmark S&P BSE Sensex. The momentum in the sector index is likely to continue given the favourable factors.

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