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Deutsche Raises EPS Estimates for Cement Makers by 3-14%
The Economic Times  |  April 24, 2019

Our Bureau Mumbai

PRICES STAY STRONG with gains of 10% so far this year, as industry leaders focus on profitability, says the bank, hinting at further upgrades driven by better realisations

 

Deutsche Bank has raised earnings per share estimates for cement companies under its coverage by 3-14% on assumption of better all-India pricing growth.

 

Deutsche said Indian cement prices have been strong, having gained 10% so far this year, as industry cost leaders have lowered competitive intensity, seeking instead to improve profitability after a weak calendar year 2018.

 

It has raised the all-India pricing growth assumption by 6% on-year for the ongoing financial year from 4%, and has estimated that more upgrades are likely as improving realisation trends are factored in.

 

Deutsche Bank has retained its buy call on ACC and raised target price to Rs 1,830 from Rs 1,790, and lifted target price to Rs 21,600 from Rs 19,330 on Shree Cement.

 

The bank has raised its target price on Ambuja Cement to Rs 235 from Rs 230 and increased UltraTech Cement’s target price to Rs 4,575 from Rs 4,240. Deutsche has raised target price on Ramco Cements to Rs 790 from Rs 785.

 

Shares of these companies ended mixed in a subdued market on Tuesday. Shree Cement, UltraTech and Ramco ended down 0.2-0.6%, while shares of ACC and Ambuja ended up 0.3% and 0.1%, respectively.

 

While the bank has buy ratings on all these companies, ACC and Shree Cement are its top picks in the cement space.

 

However, Deutsche sees demand growth moderating and believes the monsoons hold the key for recovery in demand.

 

“Demand growth across most parts of the country has eased from the heightened double-digit levels seen in CY18, with channel members indicating demand has tapered to around 6-7% in recent months and is likely to be below 5% in April. They indicated that a combination of election activity and low water tables have impacted volumes,” said Deutsche.

 

The India Meteorological Department has predicted a near normal monsoon this year at 96% of long period average, while a private forecaster has estimated that monsoons will be below normal at 93%.