UltraTech Cement, Ambuja Morgan Stanley's Picks Amid Green Shoots In Cement Industry

While weak demand and pricing has led to cement stocks underperforming over the past few months, Morgan Stanley now sees green shoots that could improve the overall environment for cement stocks going forward.

UltraTech Cement Ltd. and Ambuja Cement Ltd. are the best ways to play this cycle, according to the brokerage. Its targets for the two companies stand at Rs 13,620 per share and Rs 775 apiece, respectively, and imply a 19% and 32% potential upside for the two stocks.

Morgan Stanley's discussions with industry players across the value chain suggest that government projects which lagged during the central elections and monsoons, are not making a comeback. This factor, coupled with the brokerage's expectations of a demand pickup post the festive season, is likely to drive strong acceleration in cement demand growth.

Regarding the pricing environment, while the past few months have seen multiple price hikes, September was the first time the brokerage saw partial price hikes sustain. The Indian cement industry could see sustained price hikes over the next few months, it expects.

Given the expectation of a pickup in demand and prices, cement stocks could see outperformance over the next few months, Morgan Stanley said.

While fiscal 2025 earnings are at a risk, the brokerage states that cement companies have limited earnings risk in fiscal 2026 and fiscal 2027. The earnings downgrade cycle in the sector is coming to an end, it said.

While Morgan Stanley does expect demand to remain robust, it also expects price hikes to be nominal. This would mainly be due to the increased focus on merger and acquisitions deals the industry has seen since 2023.

Thus, margin expansion for cement companies would mainly be driven by their cost efficiency efforts and operation leverages.

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