UltraTech Cement jumped 4.6% and emerged as the top gainer on the benchmark Nifty. Shree Cement and JK Cement gained 1.5% and 1.2%, respectively. Ambuja Cement rose 0.9%. Dalmia Bharat and Star Cement advanced 0.7% each.
Nomura said that fuel costs are expected to increase ₹20-30 per tonne amid mounting tensions in West Asia and companies may hike prices by ₹10 per bag to offset the higher costs.
Given that the production of liquefied petroleum gas (LPG) is prioritised over polypropylene (PP) by refineries-which is used in packaging bags for cement and its availability could come under pressure.
“Given the uncertainties, we believe the industry is fundamentally and structurally well placed, and the recent correction in the stock prices of the larger players provides a great opportunity to enter,” said analysts at Nomura. UltraTech, Ambuja and Dalmia Bharat are the top stock picks in the sector, they added.
“The higher cost will have an impact on the margins for cement companies which has prompted them to take price hikes,” said Vincent K A, senior research analyst, Geojit Investments. “Given the strong demand, if they can pass on the hike to customers successfully then it can alleviate some stress in the short term.”
While the next couple of weeks are expected to offer some clarity on war, the escalating tensions could weigh on the sector and the markets, overall, said Vincent. Brokerage Emkay Global said that they prefer large caps like UltraTech Cement and Shree Cements which could rebound swiftly in the event of any positive news flow regarding the ongoing tension since UltraTech is trading well below its ten-year average and Shree Cements’ valuation is also cheaper than its long-term average.
“Despite the rising fuel costs, we remain in the optimistic camp and do not cut our estimates yet, hoping for an early conclusion to the ongoing geopolitical tensions,” said Emkay Global in a report.