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UltraTech Cement To ACC: Why JPMorgan Has Initiated Coverage On Five Indian Cement Firms

JPMorgan has an 'overweight' rating on UltraTech Cement and ACC. It has a 'neutral' rating on Shree Cement and 'underweight' rating on Dalmia Bharat.

<div class="paragraphs"><p>JPMorgan is 'overweight' on ACC and UltraTech Cement. (Image source: NDTV Profit)</p></div>
JPMorgan is 'overweight' on ACC and UltraTech Cement. (Image source: NDTV Profit)

Indian cement companies are set for consolidation but urbanisation and infrastructure projects will boost medium-term cement demand, JPMorgan said as it initiated coverage on five companies.

The global brokerage initiated coverage with an 'overweight' rating on UltraTech Cement Ltd. and ACC Ltd. While it assigned 'neutral' rating to Shree Cement Ltd., Dalmia Bharat Ltd. received an 'underweight' coverage.

The Indian cement sector looks set for consolidation with the larger players turning aggressive, the brokerage said in a note on Oct. 18. "Urbanisation and infrastructure projects should boost medium-term demand, and utilisation should remain stable, despite new capacity."

The industry should recover from recent weakness from post-monsoon demand pick up, government capex growth of 40% year-on-year, and cost-cutting measure of companies.

Five largest companies are expected to add 115 million tonnes of capacity in three years, JPMorgan said.

A continued real estate upcycle, better rural incomes and continued policy preference for infrastructure creation could be the drive up the sector. With a restart of overall construction post-monsoon, cement demand and prices should improve soon, the brokerage said. "This catalyst can help cement stocks near term."

The large cap stocks, UltraTech Cement and Ambuja Cement, have outperformed Indian cement peers with the start of the capacity competition and guidance of significant cost reductions, JPMorgan said.

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JPMorgan On Indian Cement Companies

UltraTech Cement: Initiated coverage with an 'overweight' rating, with a target price of Rs 13,750 per share, a 24% upside from the previous close.

ACC: Initiated coverage with an 'overweight' rating with a target price of Rs 3,020 per share, a 32% upside from the previous close.

Ambuja Cement: Initiated coverage with a 'neutral' rating with a target of Rs 590 per share, a 3.3% upside from the previous close.

Shree Cement: Initiated coverage with a 'neutral' with a target of Rs 25,175 apiece, a 3.3% upside from the previous close.

Dalmia Bharat: Initiated coverage with an 'underweight' rating and a target of Rs 1,550 apiece, a 15.7% downside from the previous close.

The brokerage prefers UltraTech Cement for better Ebitda per tonne, it said in the note. Dalmia Bharat can struggle to raise utilisation, it said.

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