Why UltraTech Cement remains top cement stock for brokerages

The brokerage said, “Better pricing and stable costs will drive recovery in unit margins. Expect a strong recovery with 44 percent EPS CAGR over FY19-21. UltraTech should reduce leverage to 1.1x by FY21-end from 3x in FY19.”

Meanwhile, Angel Broking has recommended ‘buy’ on the stock at current levels for a target of Rs 4,610 implying 10 percent upside.

Angel Broking said, “Cement stocks were on a roll on Friday and this stock, too, after forming around 89-EMA for the last two weeks has broken out of its recent consolidation confirming a bullish breakout. On daily chart, the stock has confirmed a bullish reversal pattern known as ‘Inverse Head and Shoulder’.”

The brokerage also believes that many stocks have entered an extremely overbought territory that could lead to some cooling off. This should be considered as a healthy correction to see a sustainable rally in the near term.

In a recent report by Bank of America Merill Lynch, cement companies are communicating with dealers for a major cement price hike from April 1 onwards. The price hike was taken in March which was rolled back within 10 days.

In fact, the prices are likely to increase by Rs 20/bag across South India from April 1, said the report.

ICRA has also reported that the cement industry saw a 13.5 percent YoY increase in volume to 257.7 million metric tonnes in the first ten months of the current fiscal, driven by rural and affordable housing.

Fundamentally, UltraTech Cement is the largest manufacturer of grey cement in India. The company has an installed capacity of 93 million tonnes per annum, with 18 integrated plants.

Along with being a manufacturer, the company is also the country’s largest exporter of cement in countries around the Indian Ocean and the Middle East.

At the current price, the stock is trading at P/E of 56.36x with return on equity (RoE) of 9.36 percent.  In Q3FY19, it reported domestic sales volume growth of 14 percent YoY to 17.1 MTPA. Operating EBITDA growth improved by 10 percent YoY to Rs 1,390 crore while its turnover was at Rs 8,685 crore, up by 18 percent YoY.