Cement demand in India has seen the worst run in the last two decades(4.2% CAGR over FY10-14), driven by slowdown in economic activities, according to Motilal Oswal Securities. ''We believe the industry is near trough and poised for strong recovery led by promising government, improvement in economic outlook, investment cycle recovery and creation of new state from Andhra Pradesh (AP) boosting southern region from prevailing weakness.''

''We estimate demand CAGR of 8% (FY14-17E) in base case, with possible upside risk of (1) faster than estimated recovery in investment cycle, and (2) cement growth strongly outperforming GDP growth like previous up-cycles(GDP multiplier of 1.25-1.5x during recovery phase), especially on the back of large pent-up demand,'' it said.

''Earnings growth of MOSL cement universe has been flat-to-negative over FY11-14. We expect FY15 to be the first year of recovery, which along with stronger pricing and demand should result in EPS CAGR of ~38% over FY14-17E. Recovery in demand remains the key driver for broad-based momentum in operating performance and stock returns. Companies with headroom to grow volumes at least in-line with the industry, better market mix and cost saving triggers would see a stronger uptick,'' said Motilal Oswal Securities.

''Although earning valuations looks stretched on near bottom of the cycle performance, asset valuations are still attractive considering rising entry barriers during impending up-cycle. We note cement companies have traded ~2x premium to replacement cost during FY07-08 upturn. From our coverage universe, we prefer ACC, UTCEM (upgraded to Buy) and SRCM among large caps, and DBEL, JKCE, JKLC and PRSC among midcaps,'' it added.

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