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JP Morgan remains cautious on Cement sector with an overweight rating on Dalmia Bharat

The cement sector is on Brokerage radar as JP Morgan comes up with a report on the sector. The report maintains 'Overweight' Rating on Dalmia Bharat with a Target of Rs. 1680/share.

Mansee Dave

Updated Jul 5, 2022, 13:40 IST

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New Delhi: The cement sector is on Brokerage radar as JP Morgan comes up with a report on the sector. The report maintains 'Overweight' Rating on Dalmia Bharat with a Target of Rs. 1680/share.

The overall sentiment on the sector is still cautious and the report explains a further cut in consensus earnings likely if coal prices stay high. Pricing power here is limited as the cement sector has seen a price reverse trend wherein, we see price cuts instead of price hikes and the situation may be the same as it being monsoon season.

Earnings outlook remains hazy as there are many factors which we need to consider like input cost concern, price cut trends, and capacity additions to name a few.

JP Morgan report suggests that the 2H recovery depends on how sharply coal and energy prices fall. Estimates imply a sharp 2H recovery from 2Q lows. The cement sector and its performance will be more dependent on a coal price decline and less on the cement price increase.

A medium-term issue for investors is the large capacity addition as cement companies planning large capacities can be a trigger to watch out for. The unannounced surge in capacity addition from 2HCY23 means the industry is more reliant on

-Sustained +7% demand growth

-Strong industry discipline

The cautious view of the sector is not driven by earning headwinds but by the capacity surge from 2HCY23. While Ultratech cement has announced large expansions(40MT) and ACC and Ambuja Cement have plans to add 30 MT, almost every cement company is working on the same expansion plans

A Trend is that Cement demand recovers post rains in 2H. This is obvious as Construction activity is almost nil during monsoon and hence cement demand also is affected because of it. A sharp decline in Asian Coal Price should drive stocks in the cement space.

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