UltraTech Top Cement Pick For Citi, Motilal Oswal; Shares Hit Record

Shares of Ultratech Cement Ltd. rose on Wednesday after Citi Research and Motilal Oswal Financial Services named the stock as their top pick in the sector amid the newly formed government's focus on infrastructure and capex.

"We are constructive on companies positioned to cater to India’s demand growth and working on their cost structures, backed by valuations," said Citi Research.

If India’s demand sustains at more than 8% over the next few years, cement players will eventually have more pricing power, it said. "This would imply clinker utilisation levels at closer to 80% versus currently at 72%."

Apart from UltraTech, the brokerage has a 'buy' call on Grasim Industries Ltd., Shree Cement Ltd. and Dalmia Bharat Ltd. It is 'neutral' on Ambuja Cements Ltd. while keeping a 'sell' on Ramco Cements Ltd., Nuvoco Vistas Corp., and JK Lakshmi Cement Ltd.

"ACC, Ambuja, UltraTech, Shree, and Dalmia will likely account for 75% of incremental supply," Citi said.

Motilal Oswal estimates cement volume to grow 5-6% month-on-month in May 2024, driven by the housing and infrastructure segments.

However, cement demand is estimated to be subdued in the near term due to the onset of monsoons in the next few weeks across markets, it said. "Demand should rebound strongly in the second half of fiscal 2025, supported by housing and infrastructure segments."

The brokerage estimates that the momentum for cement demand will improve with the government's focus on affordable housing, continued strong demand from real estate, and likely pick-up in industrial capex.

UltraTech Cement is Motilal's top pick in the large-cap space, while Dalmia Bharat and JK Lakshmi Cement are its favorites in the mid-cap space.

Shares of the company rose as much as 0.57% intraday to their highest level. They pared gains to trade 0.3% lower at Rs 10,960 apiece, as of 10:58 a.m., compared to a 0.75% advance in the NSE Nifty 50.

The stock has risen 4.35% year-to-date and over 36% in the last 12 months. Total traded volume so far in the day stood at 0.30 times its 30-day average. The relative strength index was at 69.14.

Of the 42 analysts tracking the company, 34 maintain a 'buy' rating, five recommend a 'hold' and three suggest a 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 0.5%.

Corrects 12-month returns in percentage terms in 11th paragraphs.