Coal news and updates

Our latest survey of the domestic cement sector suggests: we as well as companies were surprised to see that the contraction in cement demand has not been as much as feared earlier; inventory destocking resulted in price dip of 4-5% m-o-m in December, resulting in negative price-volume trade off, at least in Q3; and lower-than-anticipated demand contraction fuels reasonable probability that cement manufacturers will be able to pass on the fuel price hike in the next 30-45 days. At current valuation, this is an interesting sector to be invested in over the next 12-24 months.

We estimate margin compression for cement players due to weak prices on subdued demand and fading benefits of low fuel costs. Though the extent will vary based on operating/financial leverage, we estimate PAT margin for our coverage universe to plunge by ~370bps q-o-q.

Amidst weak demand and pricing scenario, companies with large presence in north/central regions may report margin expansion y-o-y owing to low pricing base in the previous year. We expect players such as SRCM and JK Cement (JKCEM) to report improved margins y-o-y.

The demonetisation-led demand dip is temporary and the correction in cement stocks is pricing in a slowdown of 12-24 months. This is excessive pessimism and, hence, we recommend considering the current weakness as an opportunity to buy our top picks.

SOurce: Financial Express