Cement companies Jun quarter topline to grow by 17%: Angel

Angel Broking results estimates on cement sector for June quarter:

Top line to grow by 16.7% yoy; margins to remain healthy

We expect our cement universe to report a 16.7% yoy improvement in its top line, primarily on account of a substantial improvement in realization. Amongst companies in our coverage universe, Shree Cement is expected to post the highest top-line growth of 33.7% yoy on account of robust growth in its cement and power businesses. Growth in the company’s power business is expected on account of capacity expansion of 300MW on a yoy basis. We also expect most cement players to post margin expansion on a yoy basis due to better realization.

Outlook and valuation

In our view, the cement sector's valuations in terms of EV/sales and EV/tonne are ahead of the cycle when compared to utilization levels and are almost 36% more expensive than historical valuations during periods of similar utilization levels. Hence, we maintain our Neutral view on the sector. That said, we maintain our Buy recommendation on JK Lakshmi Cement due to its attractive valuations, as it is trading at EV/tonne of US$44 on FY2014E capacity.

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