Analyst firm Sharekhan believes that, barring the southern cement players (due to drought-like conditions in key southern states), cement demand is likely to improve on account of diminishing effects of demonetisation and an uptick in government spending on infrastructure development and housing projects. However, the key monitorables going ahead would be the guidance for the upcoming southwest monsoon season (which currently is below normal), and the sustainability of price hikes taken by cement companies during April 2017 (pan-India players have taken Rs 20 per bag month-on-month (m-o-m) hike, while Andhra Pradesh and Telangana cement companies are looking for Rs 50-60 per bag hike (m-o-m).
The firm says that cement stocks have largely factored in better earnings growth for FY2018 due to the impending improvement in the demand outlook and a sustained pricing discipline. However, the drought-like conditions prevailing in south India and a weak southwest monsoon can play spoilsport in FY2018. Consequently, Sharekhan remains selective at present and has a ‘Hold’ recommendation on cement stocks under its active coverage