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Analysts upbeat over cement sector prospects

The Money Bureau

Having been relegated to the outer edges of the market with the craze for infotech stocks on the rise for a long time, the cement sector is slowly coming back into the reckoning.

The cement industry seems to have gone in for a re-rating, after being hammered down badly. A fund manager, with a leading domestic mutual fund, says, "I will look only at cement in the commodities sector, as that is where margin improvements can come about in a big way."

The cement sector, which had been seeing a growth of less than 6 per cent, has been posting double-digit growth in the last couple of months.

The recent fall in the cyclicals pushed the valuations of the cement sector down, making it very attractive at the current levels.

Rajat K Jain, chief investment officer, SBI Funds Management, says, "Globally, cement is the only commodity which even now works in a cartel formation. It is the case here, too. The cartel formation will help in improving realisations."

This time the primary demand push for the industry is coming from the retail segment. Ashit Kothari, head of research, ASK Raymond James, says, "Fall in housing loan interest rates and the low levels of real estate prices have resulted in a good demand for housing."

"This is driving growth in the cement sector. Once infrastructure demand also comes in, we will face an imbalance with demand far outstripping the supply," he added.

Most cement industry analysts are bullish on the prospects of the sector.

R Srinivasan, equity analyst, Motilal Oswal Securities, says, "We are bullish on the cement sector, primarily because of two reasons. First, the cement cycle is in an uptrend and, secondly, the incremental demand supply gap is narrowing and shortly we will be seeing a demand supply mismatch forcing realisations and margins to go up."

Sanjeev Joshi, analyst, SocGen Crosby Securities, says, "We expect the industry to be an outperformer. We are bullish on the prospects of Grasim, Madras Cements and Gujarat Ambuja Cements."

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