|
Summary of Contents
SHAREKHAN
SPECIAL
Cement earnings
preview
We expect the cement sector as a whole to report an
impressive performance for Q1FY2007 due to a 7-8% growth in the
volume and a 19-20% rise in the realisation. We expect cement
companies in the northern and southern regions, eg Shree Cement
(north) and Madras Cement (south), to deliver a superlative
performance. Amongst the cement companies in our coverage, JK Cement
is expected to top the chart of earnings growth with a 273% growth
in its net earnings. The contenders for the second and third slots
would be Shree Cement, whose net earnings are expected to grow by
182%, and Madras Cement, whose net earnings are expected to grow by
77%, respectively. We expect the operating profit margin (OPM) of
UltraTech Cement Company and ACC to expand because of cost savings
and higher leverage to firm cement prices.
Following
the sharp correction in the broader indices recently and the news of
the government's intervention to control the cement prices, the
stocks of the cement companies have witnessed a sharp correction in
the last few trading sessions. The fears of an earnings downgrade as
well as the overall lower valuations of the broader indices are now
acting as an overhang on these stocks. However we believe the strong
April-June quarter numbers and the new valuation benchmarks set by
Holcim's recent acquisitions in India shall act as positive triggers
for the cement stocks. We maintain our positive view on the sector
with UltraTech Cement, ACC and Madras Cement as our top picks. We
also like Orient Paper and JK Cement on account of their compelling
valuations, which are much lower than the sector
average. |
