The government continues its thrust on the infrastructure sector, and naturally, there has been a positive rub-off on the cement sector. A few cement players had seen their valuations dip at the beginning of this year, but subsequently, these scrips have been among the top performers in the market.
Industry watchers are bullish on the cement sector as a whole, given the positive macroeconomic environment. S Krishna Kumar of Sundaram Mutual Fund told Business Standard in a recent interview, "If you look at the India story and the sort of things the Indian government has been doing to boost infrastructure investment and public spending, the unique way would be to play the growth theme through the cement sector. The cement sector gives you great exposure to the kind of construction activities happening in the economy and you have the government-sponsored ‘Housing for All’ scheme." Kumar said that the cement sector allows "dual play" on both the domestic housing story and infrastructure stories.
Even non-cement players are now eyeing a slice of the lucrative pie. Consumer goods companies like Emami and Nirma have made major forays into the cement sector. In fact, Nirma’s buyout of Lafarge’s Indian business came as a major surprise to many industry observers.
Obviously, these new entrants are chasing high growth in the industry. In the first quarter of the current year, the cement sector posted a 6.5 per cent growth, and the good monsoon experienced by many parts of India is expected to provide a boost to the demand for cement from the rural sector.
Though there has been an increase in prices of raw material like coal and fuel, industry players are confident of passing on these increased costs to end users.
Analyst firms like Morgan Stanley opine that the rally in cement stocks seems to be far from over. They feel that with improving demand growth and slowing capacity addition, capacity utilisation will improve, lending pricing power to the industry. Morgan Stanley says investors should focus on the robust earnings growth that the industry can generate for the next 3-5 years. Its reports point to a handsome 31 per cent EBITDA CAGR growth over FY16-19.