The cement industry has experienced significant growth in recent years, largely driven by high demand from the housing sector. However, analysts foresee a period of subdued demand in the near future as the monsoon season approaches and no price hikes are expected. Despite these challenges, investment experts recommend that investors consider accumulating stocks of well-established companies such as Ultratech Cement and JK Lakshmi Cement during market dips to capitalize on a potential upturn in the latter part of the current financial year.
The performance of cement stocks has been varied in the past six months, with some companies experiencing declines while others saw significant increases. For instance, The Ramco Cements, Dalmia Bharat, and Nuvoco Vistas faced declines, while Mangalam Cement, Ambuja Cement, ACC, and JK Cement saw notable surges in their stock prices. Overall, the Nifty50 index has shown a gain of 12.8% during this period, reflecting the mixed performance of cement stocks.
Analysts expect a slowdown in demand growth for cement in the upcoming financial year 2024-25 compared to previous years, with projections ranging from 5-7% year-on-year. While the sector is expected to be influenced by robust infrastructure demand and steady growth in housing and commercial segments, the demand forecast for FY25 remains below the levels of FY23-FY24. Factors such as pricing hikes in certain regions being rolled back due to poor demand, heat waves affecting labor availability, and general elections impacting pricing dynamics further contribute to the challenges faced by the industry.
Amidst expectations of continued downward pressure on cement prices, research firms like CareEdge Ratings and Nuvama Institutional Equities predict a decline in prices by 2-3% for FY25. These projections are based on factors such as capacity utilization staying below 70% and increased competition among industry players. Despite the challenges, analysts anticipate a potential recovery in cement prices in the second half of FY25, following the monsoon season and announcements from the Union Budget, which could have a positive impact on certain companies' margins and operational performance.
Both CareEdge Ratings and Nuvama Institutional Equities maintain a 'Neutral' stance on the sector, indicating caution regarding the industry outlook. However, Nuvama Institutional Equities has a 'Buy' rating specifically for JK Lakshmi Cement, suggesting a more positive view on this particular company within the sector.