Construction Materials share price target

Housing and construction are the sectors most impacted by demonetization. While market participants aver things will normalize in 3-6 months, the impact is enough to postpone the much awaited recovery in cement demand by another year or so. Further, we fear a longer slump in secondary/unorganized real estate markets which drive a large proportion of cement sales (IHB). We also do not believe that a rebound in infrastructure demand will be enough to offset the above-mentioned slump in housing.

Prefer KNR, NCC, PNC Infra on back of pure play EPC focus. We expect EPC players valuation multiples to expand on back of strong order intake, balance sheet deleveraging & lower interest rates.

Cement stocks have rallied ~40%/13% in trailing 12M/3M period given expectations of strengthening volumes, weaker capacity additions and prolonged periods of strong pricing. Large cap cement stocks now trade at 10.5-16.5x FY18 EV/EBITDA and these valuations do not have any room for disappointments. We remain focused on select midcaps (Sanghi, Birla Corp). We have increased the target prices for stocks, largely driven by higher multiples

Inampro (Platform for Infrastructure and Materials Providers) was created in 2015 to set up Government sourcing of cement (and later steel/other construction inputs) directly from producers. It received widespread attention, primarily due to few (very low) rates quoted at the time (Rs 120/bag). However, the initiative did not take off. Order quantities remain dismal. Our takeaways from a quick revisit to the portal

On June 2012, the Competition Commission of India (CCI) had imposed a penalty on 11 cement companies for alleged cartelisation during May 2009-March 2011. However, the penalty imposed by CCI was referred back by the Competition Appellate Tribunal (COMPACT) on December 2015. On August 31, 2016, CCI reiterated the observation made in its previous order and re-imposed the penalty of | 6700 crore on 11 cement companies. The penalty imposed is 0.5x of net profit earned in FY10 and FY11. The companies, which would face the penalty are ACC, Ambuja...

In large caps, we prefer Grasim Industries, (BUY, TP Rs 5,237) with its improving standalone business profile, over UltraTech (NEUTRAL, TP Rs 2,973). Sanghi Industries (BUY, TP Rs 83) remains the key mid-cap pick given its improving operational metrics and high scalability.

SRCM better placed to see both growth and RoIC expansion Upcycle parameters only partially sanguine Cement stocks are partially factoring in upcycle dynamics in their valuations. Rising...

Construction & Logistics: 4QFY16E Results Preview