Cement market up
With infrastructure development in full swing in India, the cement sector stands to gain by the demand for cement in India. Markets have performed well over the past one year with Sensex delivering approximately 2.90 per cent over a one year period and almost 7.50 per cent on YTD basis.
Even as broader markets struggled to gain in double digits, three cement stocks have more than doubled in one year time frame. Kakatiya Cement Sugar & Industries Ltd (KCSI), Shiva Cement Ltd, and Deccan Cements Ltd, are the three stocks that have gained more than 100 per cent in one year time frame.
From Oct-15 to Oct-16 period KCSI has gained almost 226 per cent, Shiva Cement Ltd 147 per cent and Deccan Cement-128 per cent.
The other cement stocks that did well by generating more than 50 per cent returns over one year are Shree Digvijay Cement Company Ltd, Ramco Industries Ltd, OCL India Ltd, Burnpur Cement Ltd, Sainik Finance & Industries Ltd, Century Textiles & Industries Ltd, Heidelberg Cement India Ltd, Mangalam Cement Ltd, and Barak Cement Ltd.
ICICI Direct is bullish on UltraTech Cement and has recommended buy rating on the stock with a target price of Rs 4,600 in its research report. UltraTech Cement announced its Q2FY17 results that are not directly comparable due to adoption of new accounting standard (IND-AS). Under the new accounting standard, the company reported sales including excise duty. Hence, optically revenues look significantly higher than estimates (Rs 6,134.6 crore as against the estimated Rs 5,502.8 crore).
After adjusting for excise duty, revenues of Rs 5,397.9 crore are in line with the estimated figure. However, the EBITDA and PAT were above estimates mainly due to lower than anticipated power cost and higher than anticipated other income (IND AS impact). Revenues during the quarter declined 2.3 per cent year-on-year (YoY) to Rs 5,397.9 crore due to 3.1 per cent YoY decline in realisation (Rs 4,828 per tonne against the estimated Rs 4,804 per tonne), partly offset by 0.8 per cent YoY growth in volumes (11.2 MT as against the estimate of 11.5 MT) EBITDA per tonne increased 17.6 per cent YoY to Rs 978 per tonne (against estimateed Rs 900 per tonne) in Q2FY17, led by lower power and fuel cost per tonne and freight cost per tonne. The cement sector is poised to witness robust growth in the coming years, led by: improving demand, slowdown in capacity addition and consolidation. UltraTech being a pan India player makes it a key beneficiary of this upturn. Further, improving realisation and the companyGCÖs focus on cost rationalisation is expected to aid margins. With the industry-leading growth, higher margins and healthy balance-sheet, maintain our positive view with a target price of Rs 4,600 per share (at 20.0 x FY18E EV/EBITDA).
(Source: ICICI Direct)
JK Lakshmi Cement plans to raise up to Rs 500 crore through private placement for which it will seek shareholders approval. The Board shall consider issue of non-convertible debentures (NCDs) of up to Rs 500 crore, in one or more tranches, on private placement basis subject to requisite approval of the shareholders, according to the company. Part of the $4 billion JK Group, JK Lakshmi Cement operates integrated cement facilities at Sirohi (Rajashthan), Durg (Chhatisgarh), Kalol and Surat (Gujarat) and Jharli (Haryana).
At present, it produces 8.4 million tonne annually and its capacity is scheduled to go up to 12 million tonne per annum shortly.