An employee carries a sack of cement. (Photographer: Asim Hafeez/Bloomberg)

‘Not So Cheap’ Cement Stocks Unlikely To Correct, Macquarie Says

Pricing power for cement companies is expected to boost earnings growth which may offer some support to their otherwise high valuations, according to Macquarie Research.

The cement sector is past the excess supply situation led by improving demand on the back of the government’s aggressive push for infrastructure development, the report said.

The higher utilisation levels, Macquarie said, will lead to better pricing power. But the ‘not so cheap’ valuations are unlikely to correct due to increasing entry barriers, that is high gestation, capital costs and lack of limestone reserves, it said.

Following are the top picks of the sector:

UltraTech Cement

  • Outperform; Target price of Rs 4,800.
  • Earnings will recover after 2017-18 blip.
  • Binani and Century assets to extend leadership position.

Shree Cement

  • Outperform; Target price of Rs 20,537.
  • No longer just a regional player; premium valuations well deserved

Dalmia Bharat

  • Outperform; Target price of Rs 33,130.
  • Cost efficiency and branding to boost margins.


  • Neutral; Target price of Rs 1,640.
  • Growth through merger and acquisition route can cause re-rating.
  • Valuations at $110 per tonne enterprise value is not demanding

Ambuja Cement

  • Neutral; Target price of Rs 230.
  • No capacity addition to limit growth headroom.
  • Sector recovery is priced in valuations.