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The year so far has been mixed for cement stocks. Shares of ACC (-28 percent) and Ambuja Cements (-26 percent) have fallen significantly so far this year due to the sell-off following the Adani-Hindenburg saga. In contrast, shares of UltraTech Cement (+8 percent) have significantly outperformed Nifty (up 1 percent) so far this year.

The cement space is a tricky one for investors. However, since it is an integral part of the infrastructure theme, analysts and brokerage firms consider them good bets. That said, they add that one should be stock specific in the sector and avoid blind bets on any stock.

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ACC Q1CY23 numbers

ACC reported a 40.5 percent drop in consolidated net profit €235.63 crore for the March quarter of calendar year 2023 (CY23). This was against a net profit of €396.61 crore in the corresponding last fiscal quarter.

Revenue from operations rose 8.2 percent to €4,790.9 crore for the considered quarter as compared to €4,425.54 crore in the same period a year ago.

Ambuja Cements Q1CY23 Numbers

Ambuja Cements reported an increase in net profit of 1.6 percent €502.4 crore for the March quarter as compared to €494.4 crore in the corresponding quarter last year.

The turnover of the Adani Group firm saw an increase of 8.4 percent to €4,256.3 crore during the March quarter as compared to €3,926.7 crore in the same period of last year.

Ultratech Cement Q4FY23 numbers

Ultratech Cement reported a net profit of €1,666 crore for the quarter ended March 31, down 32.3 percent from €2,460.51 crore posted in the same period a year earlier.

Consolidated net sales for Q4FY23 increased to €18,436 crore, an increase of 19 percent from €15,557 crore in the same quarter of the previous financial year.

Mediation views on ACC

Brokerage firm Motilal Oswal Financial Services has a ‘neutral’ view on ACC with a price target of €1,990.

Motilal Oswal said ACC’s growth plans and its cost-cutting initiatives will be the most important verifiable. It added that there is still uncertainty about the commissioning of the UP sharpening unit.

In addition, the brokerage firm emphasized that while the company’s cash balance has improved sequentially, it has significantly decreased from last year ( €3,110 crore vs €7,400 crore as of Dec 2021). In addition to the pressure on profitability, an increase in other current assets (coal advance) led to a decrease in the cash balance, according to the brokerage firm.

Brokerage firm Nirmal Bang has an ‘accumulate’ view on ACC with a price target of €1,912.

The brokerage firm said ACC reported volume in line with its estimate, but despite a brief shutdown of HP units, realization per ton came in better than expected.

“ACC will benefit from greater volume growth, lower raw material costs and a more effective pricing strategy (maintaining its position in the ‘A’ category price range in key markets) now that the HP transportation strike has been resolved,” said Nirmal Bang.

Real estate firm Motilal Oswal Financial Services has made a ‘neutral’ appeal to Ambuja Cements with a target price of €390.

Motilal said that Ambuja and ACC (Adani Group entities) are net cash positive companies, with a consolidated cash balance of €11,500 crore as of March 23. Cash reserves, together with the remaining proceeds from warrants, will support their investment plans.

However, the brokerage firm added that more clarity is needed on capex as the firm has not yet placed orders for any equipment.

“We believe that organic expansions will take longer and we have not accounted for significant expansions in our estimates,” said Motilal Oswal.

On the other hand, brokerage firm Nirmal Bang has a ‘buy’ call on Ambuja Cements with a price target of €496. It said Ambuja Cements’ numbers were in line with projections.

Nirmal Bang said Ambuja is the net beneficiary of the numerous measures implemented to improve operational efficiency through ACC.

“The company’s strong retail brand value, cost reduction and product improvement initiatives are all commendable,” said Nirmal Bang.

Motilal Oswal Financial Services has a buy call on UltraTech Cement stock with a price target of €8,600.

Motilal expects UltraTech’s consolidated volume to report a CAGR of nearly 8 percent over FY23-25 ​​and its EBITDA/t by €1.175 and €1,250 in FY24E and FY25E respectively, versus EBITDA/t of €1,005 in Fiscal Year 23.

“UltraTech generates strong cash flows and we estimate cumulative OCF/FCF €23800 crore/ €12100 crore over FY24-25. We estimate that the company will become net cash positive in FY24,” said Motilal Oswal.

Nirmal Bang also has a ‘buy’ call on UltraTech Cement with a price target of €9,795 because it said the results were in line with estimates.

“After Q4FY23, our price estimates for Ultratech have not changed. We remain positive about the company’s focus on its core cement business, sheer size, ambitious expansion plans, track record and strong balance sheet,” said Nirmal Bang.

How to play cement stocks?

Analysts appear positive on the cement sector, but underline that stocks could remain volatile in the short term due to market uncertainty.

Arun Agarwal, Vice President at Kotak effects pointed out that in Q4FY23, UltraTech Cement showed strong year-over-year volume growth and a sequential increase in EBITDA/ton.

He said UltraTech’s expansion projects offer room for growth.

Agarwal further said that Ambuja Cements reported year-over-year and quarter-over-quarter volume growth in Q4FY23 and that the company is working on multiple expansion projects.

Agarwal expects cement company margins to improve in the future.

“In FY24E, cement players’ margins are likely to be supported by lower energy costs and operational leverage from healthy volumes,” Agarwal said.

Aamar Deo Singh, Chief Advisor at Angel one has similar views.

Singh said the cement sector has witnessed a significant increase in total volume production in the fourth quarter, with cost pressures easing. On the revenue side, prices are likely to remain under pressure until the monsoon, after which prices are expected to rise once construction activity picks up after the monsoon.

“Ambuja and ACC have corrected more than 35 percent from recent highs, while Ultratech is down just 10 percent. Investors appear to be taking a cautious approach following the sell-off that took place after the Hindenburg report, but overall the sector is a key role.” infrastructure one, is very promising for years to come,” said Singh.

disclaimer: The views and recommendations in this article are those of individual analysts and brokerage firms. These do not represent the opinion of Mint. We recommend that investors consult certified experts before making investment decisions.