Cement capacity to rise 7% by FY28, says Citi; Investec flags 19% upside on JSW – CNBC TV18

Brokerage agency Citi has revisited its demand-provide outlook for the Indian cement business, flagging a pointy acceleration in introduced capacity additions over the subsequent three years.

In accordance to Citi, cement firms have introduced expansions of round 158 million tonnes (mt) over FY25-FY28, implying a capacity CAGR of seven.4%. Clinker additions over the identical interval are estimated at round 77 mt, reflecting a 5.8% CAGR.

The brokerage mentioned UltraTech Cement and Ambuja Cement collectively account for greater than 50% of the deliberate expansions.

Additionally learn: Novartis AG exits India arm, sells 71% stake to ChrysCapital-led consortium

Citi estimates that clinker-backed capacity additions will translate into an efficient provide improve of round 143 mt, or roughly 48 mt every year over the interval.

On a regional foundation, efficient capacity CAGR for FY25-FY28E is predicted at 11% within the North, 7% within the East and Central areas, and 5% within the South and West.

The brokerage highlighted ongoing consolidation within the sector, noting that the highest 5 gamers now account for greater than 75% market share throughout most areas, besides the South, the place their share stands above 60%.

On pricing and profitability, Citi mentioned business utilisation stood at 68% in FY23 following the pandemic, and is estimated at 67-68% throughout FY25–FY26E.

Pricing CAGR for lined firms between FY23 and FY26 is estimated to be unfavorable 1-2%, though EBITDA per tonne has expanded due to price efficiencies.

Additionally learn: Wall Road falls as financials tumble; US-Iran tensions hold oil elevated

EBITDA per tonne, nevertheless, is probably going to broaden additional, supported by price efficiencies and quantity development.

The brokerage added that consolidation ought to assist stop any important fall in costs, though the North area might even see comparatively increased volatility given the sooner tempo of capacity enlargement there.

Citi’s high picks within the sector are UltraTech Cement, which it values at an EV/tonne of $180 amongst massive caps, and JSW Cement at $90 EV/tonne within the small- and mid-cap area.

Individually, brokerage agency Investec has initiated protection on JSW Cement with a ‘Purchase’ score and a goal value of ₹146, implying an 18.56% upside on Thursday’s final traded value of ₹123.15 apiece.

Investec mentioned JSW Cement stands out for its superior execution, price management and disciplined development technique, backed by sturdy group synergies throughout the JSW ecosystem.

Investec believes the corporate’s strong capacity pipeline and structurally advantaged working mannequin place it to scale into India’s high 5 cement gamers by FY30. It additionally highlighted JSW Cement’s management in blended cement and ESG metrics throughout the sector.

Main cement shares closed within the crimson on Thursday, February 19. UltraTech closed almost 3% decrease at ₹12,664, whereas the inventory has delivered 12.19% returns up to now 12 months. Ambuja Cement fell 1.47% to ₹515.30, with the inventory gaining 6.72% up to now yr. Shares of JK Lakshmi Cement closed 0.49% decrease, however have risen 1.38% within the final 12 months.