Nomura Downgrades 3 Cement Stocks Amid Industry Challenges
Global brokerage firm Nomura has downgraded its ratings on three prominent cement stocks—Shree Cement, ACC, and Nuvoco—amid increasing headwinds facing the Indian cement industry. The firm cites weak pricing power and sluggish demand growth as the primary concerns impacting the sector. Shree Cement has been downgraded from a ‘Buy’ rating to ‘Neutral,’ with a revised target price of ₹28,000. Both ACC and Nuvoco have been downgraded from ‘Neutral’ to ‘Reduce,’ with target prices of ₹1,920 and ₹330, respectively.
Nomura’s report highlights the tough market conditions the industry is grappling with, noting that volume growth has significantly slowed. The Indian cement industry registered a mere 2 percent year-on-year volume growth in the first half of FY25, compared to a strong 12 percent growth during the same period in FY24. The brokerage also attributed the moderation in growth to limited fund releases by the government and a slowdown in the launch of new infrastructure projects, common during election years. In addition to weak demand, cement trade prices have fallen by 8 percent year-on-year in the first nine months of FY25, driven by the ongoing demand slump. This has created pricing pressure, particularly during the ongoing consolidation phase of the industry. The relationship between volume growth and pricing has turned notably negative, with an observed coefficient of -0.8 between FY21-24. This negative correlation reflects the industry’s struggle to balance both volume and pricing amid tough market conditions.
Despite these challenges, Nomura noted a potential silver lining in cost reductions. Prices for imported pet coke and thermal coal have decreased by 19 percent and 8 percent year-on-year, respectively. However, these cost savings are unlikely to lead to significant EBITDA expansion due to the continuing weak pricing environment. The declining power and fuel costs (P&F costs) between FY23 and H1FY25 are expected to have already been factored into the market. Looking ahead, analysts suggest that cement prices will remain weak, especially as companies face market share battles amid ongoing consolidation in the sector. Nomura remains optimistic about companies that are focusing on sustainable cost-saving measures, but the brokerage cautions that aggressive price hikes may not be sustainable for the industry in the near term. As Nomura adjusts its stance on these cement stocks, investors are advised to closely monitor the ongoing market conditions and the impact of weak demand and pricing pressure on the financial performance of these companies.
