Business

cement stocks: With pickup in volume, cement stocks offering an opportunity

By DK Aggarwal


The cement industry is looking for brighter days ahead, which at present has been going through a consolidation phase. In India, cement demand comes from four key segments — housing, infrastructure, commercial and industrial.

There are expectations that cement demand would pick up in the affordable and rural housing segments and also from the infrastructure sector, primarily road and irrigation projects. The industry is also going to benefit from government initiatives such as expansion of capacity in the railways and improving facilities for handling and storage to ease cement transportation and reduce costs.

In order to tap industry demand, many cement companies are adopting multiband strategies and have also been expanding market base. Besides, the strategy to deliver faster to customers has increased growth of sales volume in recent times.

The recent pickup in demand from Andhra Pradesh and Telangana, several eastern states as well as western Indian markets, led by execution of infrastructure projects, has supported volume growth. Sustained volume growth, despite price hikes, indicates continued growth momentum.

On the flip side, a spike in pet coke price emerges as a key challenge for the industry. Cement, power and steel industries are predominant consumers of pet coke. And surging prices of petroleum coke in a challenging pricing environment has been restricting operating margin growth of many cement companies. To note, the pet coke market in India has grown at a compounded annual growth rate (CAGR) of around 23 per cent over last five years.

As said earlier, India has a lot of potential for development in the infrastructure and construction sectors and the industry is expected to largely benefit from it. The Government of India is strongly focused on infrastructure development to boost economic growth.

The eastern states of India will continue to be the newer and virgin markets for cement companies and may contribute to their bottom lines in future.

Companies such as Ramco Cements, Ambuja Cement, JK Cement and those companies, which have exposure to Kerala, could see growth with pickup of reconstruction activities after the recent flood damage. Investors can look at these stocks, but should invest in a staggered manner.




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