Analysts at Bernstein have downgraded three cement stocks, including Ultratech Cement and Ambuja Cement, while reducing the target prices further on an expected fall in their operating margins.

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The analysts expect a potential downside of up to 14 percent in these cement stocks in the next 12 months as there is limited room for improvement in the operating margins due to rising coal inflation.

Bernstein, in a report on the cement sector, observed that it expects a 4-8 percent decline in the earnings before interest tax depreciation and amortisation (EBITDA) per tonne with most of the positive news done and updated views on coal.

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The brokerage also stated that it does not see reasons for further valuation re-rating from current levels as it sees limited room for improvement in EBITDA per tonne after the next two quarters.

The brokerage downgraded Shree Cement to ‘underperform’ and reduced its target price further from Rs 23,187 per share to Rs 22,341, implying a potential downside of 14 percent from Wednesday’s close.

Bernstein downgraded Ambuja Cement to ‘neutral’ and cut down the target price by nine percent from Rs 466 earlier to Rs 424 per share.

It also downgraded Ultratech Cement to ‘neutral’ and reduced the target price by three percent from Rs 8,565 earlier to Rs 8,256, implying potential downside of more than two percent from Wednesday’s close.

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Cement companies have witnessed a rise in input cost as imported coal prices have firmed up around 15 percent in the past three months.

India’s largest coal miner Coal India Ltd in May announced an eight percent hike in prices of high-grade coal ranging from G2 to G10 to make up for high wage costs.

The price hike, which was the first significant increase in coal prices since 2018, was applicable to all subsidiaries of CIL.

Shree Cement shares were trading 0.19 percent lower at Rs 26059.60 apiece on BSE at 9.59 AM.

Ultratech Cement dropped 0.93 percent to Rs 8378.15 apiece while Ambuja Cement was trading lower by 0.63 percent at Rs 425.50 apice.

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(Edited by : Asmita Pant)

First Published:Sept 21, 2023 10:24 AM IST