Following milder hikes in January, cement prices have risen sharply by Rs 20-70/bag across multiple markets during February on supply shortage (due to closure of Binani’s Rajasthan plant) and some demand uptick MoM.
Religare Institutional Research said that most of dealers we interacted with sounded more confident this time (than in the past) on the sustainability of price hikes, barring some softness during the Holi festival in select regions.
'In our view, a resolution of the issue around the Binani plant closure and an unfavourable SC verdict on sand mining in Rajasthan may lead to some pressure on pricing,' it added.
If the sharp hikes sustain across most regions, cement players should be able to offset any cost pressures and report an improvement of at least Rs 100-300 in their EBITDA/t (ex south-based players). SRCM and JKLC are likely to be the strongest beneficiaries of these price hikes.
''Major large-caps have underperformed the broader index in the past one year and are trading at near-replacement costs similar to 2010 levels. Hence, we believe while stocks could see time correction over the near term, the downside is limited from here on. The sector is under-owned, and hence any positive news flow in terms of demand growth/price hikes could translate into strong outperformance of cement stocks. We believe the sector should be on the investor radar over the coming months; accumulate on dips,'' Religare said.
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