JPMorgan remains optimistic about India’s cement sector, driven by expectations of an acceleration in central government capital expenditure (capex). The brokerage has reaffirmed its “Overweight” rating on UltraTech Cement, alongside positive outlooks for stocks like Shree Cement and Dalmia Bharat, which have already risen by 10-13% since mid-November.
The optimism comes despite a lack of immediate signs of recovery in cement demand. JPMorgan attributes the recent uptick in cement stock performance to anticipation of increased government spending towards the end of FY2025. “While spending improvement has yet to materialise, it is expected to gain momentum in the coming months,” the brokerage stated. The government has earmarked ₹11.1 trillion for capital expenditure in FY2025, a sharp 19% increase from the ₹9.3 trillion allocated last year. However, only ₹4.6 trillion had been utilised by October 2024, leaving a considerable 61% of the budget to be spent in the final months of the fiscal year. This aggressive push in public infrastructure investment is expected to stimulate cement demand.
UltraTech Cement, the brokerage’s top pick, is poised to benefit significantly from these developments. The company plans to commission an additional 9 million tonnes of capacity in the coming quarters, strengthening its leadership position in the industry. Furthermore, ACC, with its attractive valuation, has been identified as another promising investment option. While expectations for a demand recovery remain high, private construction activity—particularly in real estate—has yet to show robust growth. Cement prices have remained largely stagnant across India, with only sporadic hikes in select regions. In the North, pollution restrictions have further dampened construction activities, limiting price movement.
JPMorgan highlights that despite the current price stability, higher volumes in the third quarter could drive operating leverage for cement companies. However, the firm cautioned that the sector may face challenges in meeting full-year consensus expectations due to the sluggish demand recovery and muted price growth. As the market looks to FY2025 for significant capex-driven demand, cement stocks remain a focal point for investors banking on long-term growth in India’s infrastructure and construction sectors.
