Ultratech, Ambuja, Other Cement Stocks Rally as FM Sitharaman Hints at GST Review

Shares of cement manufacturers were trading higher by up to 3 per cent on the BSE in Wednesday’s intra-day trade. Share prices of Ultratech Cement, Ambuja Cements, JK Cements, Ramco Cements gained between 1-3 per cent on February 8, a day after Finance Minister Nirmala Sitharaman indicated that the government could be open to considering a reduction in the goods and services tax (GST) on cement.

UltraTech Cement, Ambuja Cements, India Cements and HeidelbergCement India were up 3 per cent each. ACC, Dalmia Bharat, Star Cement and JK Cement were up 2 per cent on the BSE.

At a session with members of the Confederation of Indian Industry (CII) in New Delhi, she assured that she would have the fitment committee look into the existing 28 percent GST rate on cement.

Meanwhile, analysts at Emkay Global Financial Services expect the industry’s profitability to increase by Rs 150-200/ton QoQ in January-March quarter (Q4FY23), mainly led by input cost savings and higher operating leverage. International petcoke prices corrected by >35 per cent from their peak (in Apr-22) at US$175/ton. Despite 35-50 per cent correction in South Africa/Australian non-coking coal prices in the past few months, petcoke consumption still stood 10-15 per cent cheaper than coal on per Kcal basis, the brokerage firm said in sector update.

Cement companies are attempting price hikes of Rs 5-15/bag across regions in February 2023. Absorption of such hikes will be revealed over the next few days, the note added.

While an improvement in margins is expected to be visible from July- September quarter (Q3FY23) onwards, a sustainable correction in energy prices would be crucial for a further improvement in profitability given the limitations in price hikes. Notwithstanding near-term challenges, the demand outlook is expected to remain strong, going forward, considering upturn in housing cycle and step-up in government spending towards infra projects in the run-up to upcoming general elections, ICICI Securities said in cement sector result preview.

According to foreign brokerage firm Jefferies, a GST cut from 28 percent to 18 percent would imply 7-8 percent cut in customer pricing. It will provide minor fillip to volumes and is positive for pricing in medium term, it noted.

Cement companies took a hit to their bottomline on account of higher fuel costs in 2022, but that is expected to change this year, believe analysts.

Cement demand is expected to improve over next few quarters on account of robust Union Budget as well as upcoming elections, they added. “Hiked in capital expenditure by 33 percent YoY to 3.3 percent of the GDP in FY2024 is positive for cement demand growth,” said Kotak Institutional Equities.

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