Kolkata: While the cement sector is witnessing fast growth in volumes, it is also experiencing a shock — petcoke and packaging costs are soaring for the sector, thanks to the US-Iran war. This has put operating margins under pressure and companies are trying to manage costs by raising prices. Major brokerage HSBC thinks that capacity additions are supposed to rise to a peak in the new financial year of FY27 and demand is also set to grow at about 6-7%. Infrastructure will be one of the key drivers of this sector. It can help pricing, utilisation levels and, therefore, boost margins in the cement sector. Let’s have a look at the stocks HSBC is bullish on.
Ambuja Cements
Signal: Buy
Target price: 590
The target price implies a 45%+ from current market levels. HSBC thinks the earnings of the company will improve as capacities which have been recently added stabilise and utilisation rate improves. The management has said that returns will improve in the next few years following significant capacity expansion. HSBC thinks earnings growth will improve.
Nuvoco Vistas
Signal: Buy
Target price: Rs 420
Nuvoco Vistas is the cement manufacturing arm of the Nirma Group. This target price too implies a more than 45% upside. A big part of the company’s business comes from eastern India and this region is expected to become more robust, according to HSBC. The east has weathered excess capacity and soft prices over the past few years but capacity additions have ebbed and prices can becomes firm in the next few years. While capacity was growing in the east at 10% annually it is decelerating to about 4% between FY26 and FY30. “Over the next three years, we expect pricing in the East to be among the strongest in India,” mentioned HSBC in its note. The company has also acquired debt-laden Vadraj acquisition for Rs 1,800 crore, which will help the firm in the western region. HSBC thinks both volumes and margins of Nuvoco will improve.
Dalmia Bharat
Signal: Buy
Target price: Rs 2,490
The target price implies a near 40% upside from the current levels. As the cement sector improves in the East, Dalmia Bharat is expected to benefit directly from it where it has significant presence. Both realisations and profitability of the firm can improve, said HSBC. “Region-specific pricing improvement should drive earnings growth,” HSBC said. Dalmia cement’s valuation remains attractive and HSBC thinks earnings visibility will improve.
UltraTech Cement
Signal: Buy
Target price: Rs 13,750
UltraTech Cement’s target price signals a near-28% upside. HSBC points to the fact that after going through expansion and acquisitions, the focus of the company is now on achieving better utilisation and boosting margins. UltraTech has a big-scale player and it is in a better position to manage costs and pocket gains whenever the market turns conducive. “Earnings should improve as the supply and demand environment improves,” HSBC mentioned.
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