The cement sector witnessed a lull last year, thanks to high input costs, monsoon and decline in most markets. However, the tables seem to have turned this year and the cement stocks have already rallied 10-30 percent year to date (YTD) in expectation of a stable government post Lok Sabha 2019 elections.

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According to CLSA, higher exit prices signal a strong Q1FY20.

In fact, a few stocks like UltraTech Cement, Shree Cement and ACC Ltd, in anticipation of a stable government and positive Union budget, have touched their 52-week high this week. In fact, mid-cap cement stocks such as JK Cement and Ramco Cements have given good returns in the last one year.

Moreover, market participants have also been bullish on the sector after Q4FY19, as it stood as the sixth consecutive quarter of double-digit growth. Volume growth momentum stayed strong at 11 percent in Q4.

Majority of the cement companies have guided of increased capacity utilisation and easing of input costs ahead of this year. Also, the government's thrust on infrastructure spending and 'Housing For All' policy revives demand.

Despite the high volume base, industry feedback on volume growth stayed positive, led by the government's focus on infrastructure spending. Also, exit prices were higher than quarter average, signalling a strong Q1FY20. In medium-term, capacity expansion is not viewed as a big concern, CLSA stated.

As per CLSA's channel checks, recent elections have disrupted activity on the ground due to factors including lack of workers and tight liquidity. As a result, there has been a trend of higher discounts and rebates offered by channels and players in a bid to clear inventory.

First Published:May 29, 2019 2:49 PM IST