Construction Materials share price target

are expected to fall 30% YoY in the quarter. Led by lower fall in May at 12% YoY and 1% YoY growth in June, companies were able to restrict the impact of 80% fall in April to 30% for the quarter. We remain positive on the sector in wake of improving demand outlook, sustainable price discipline and reasonable valuations. Ultratech cement (UTCEM), Ambuja cement (ACEM) and JK Lakshmi cement (JKLC) remain our top picks in the sector. Production recovered strongly in May: Based on the DIPP data, cement production slumped by 54% YoY in Apr-May'20 on a base of +2.5% YoY growth....

are expected to fall 30% YoY in the quarter. Led by lower fall in May at 12% YoY and 1% YoY growth in June, companies were able to restrict the impact of 80% fall in April to 30% for the quarter. We remain positive on the sector in wake of improving demand outlook, sustainable price discipline and reasonable valuations. Ultratech cement (UTCEM), Ambuja cement (ACEM) and JK Lakshmi cement (JKLC) remain our top picks in the sector. Production recovered strongly in May: Based on the DIPP data, cement production slumped by 54% YoY in Apr-May'20 on a base of +2.5% YoY growth....

The Indian cement sector, after a muted beginning in FY20, started showing signs of a revival since November 2019.

Cement prices have increased QoQ in 4QFY20, aided by demand recovery. Further, as fuel prices continue to fall and diesel price remains stable, margin tailwinds appear sustainable for the industry. In our view, cement companies with large sales exposure to north/central/Gujarat markets should gain the most. In this report, we deep dive into operating performance of 19 listed cement companies to compile industry trends. These companies comprise ~75% of the Indian cement industry and hence largely reflect the industry trend. Our analysis suggests that despite subdued demand in the past three qtrs, industrys operating margin has scaled up to decade high. This is driven by strong pricing in the north/central/Gujarat markets, steady fall in pet-coke prices and low diesel prices.

However, we expect 4Q realization to be flattish YoY in Maharashtra and lower in south (-7%) and east (-4% YoY) markets, hit hard by weak pricing in 2Q/3Q. North-east prices are 3% higher YoY in 4Q, as per our checks. Thus, companies with large exposure to north/Gujarat/central markets will continue to enjoy realization tailwinds in 4QFY20. Our pan-India dealers check suggests that cement demand and prices have improved across India during Jan/Feb 2020. This has helped cement prices to cumulatively increase by ~Rs15-30/bag during these two months (higher recovery in East). These suggest strong pricing to sustain across North/Gujarat/Central markets (+7-14% YoY in 4QFY20).

Fortunes of the cement industry are set to take a favourable turn led by demand revival, surging cement prices

Strong prices offset the muted volume growth 3QFY20E Overview: Price continues to remain under pressure (3.8% down on QoQ, Rs12-13/bag) during this quarter due to slowdown in construction activity, prolonged monsoon and liquidity problems in Govt. Projects. South and West witness higher prices drop (5% down on QoQ); whereas East and North showed 3% price drop during the same period. Central would be most preferred region during 3QFY20; where prices were...

We recently interacted with some cement players in East and North India to gauge demand and pricing scenario in the regions.

Cement prices have seen sharp decline (Rs9-10/bag) due to fog issue in winter along with slowdown in infra/real estate projects. On demand front, dealers suggested volumes under pressure as ACC, Ambuja and Bharti (Follow Calendar Year as Financial Year) have been pushing excess stocks to achieve end of the year target which further forced price down. However, last 10 days of Dec demand has showed marginal improvement on the account of low cost housing. Our dealer check suggests that all India average prices have declined by 2.7% MoM (Rs9-10/bag) to Rs.314/bag, which is...

(Rs/bag) How ever, maket could absorb hike of only Rs20 due to w eak demand. While prices in Bengaluru fell by Rs10/bag....